{"id":2061,"date":"2016-02-08T10:05:16","date_gmt":"2016-02-08T09:05:16","guid":{"rendered":"http:\/\/blogg.lnu.se\/china-research\/?p=2061"},"modified":"2016-02-08T10:05:16","modified_gmt":"2016-02-08T09:05:16","slug":"chinas-currency-dilemma","status":"publish","type":"post","link":"https:\/\/blogg.lnu.se\/china-research\/?p=2061","title":{"rendered":"China\u2019s currency dilemma"},"content":{"rendered":"

China\u2019s currency reserves are shrinking, in January again by almost USD 100 billion after an even somewhat higher amount in December. This means in absolute numbers a downturn from the peak of 3993 billion in June 2014 to 3230 billion in January this year \u2013 a downturn that is more than USD 750 billion! This is quite an amount.<\/p>\n

Two factors are reflected by this development. First, the weakening Chinese exports play certainly a role. More important for the latest development, however, is the fact that China\u2019s central bank \u2013 the PBOC \u2013 still intervenes on currency markets to avoid a too obvious weakening of the currency RMB. Chinese leaders have recently announced quite frequently that they do not want such a distorting trend.<\/p>\n

Following the textbooks and historical experience, they are right. During all the years I have been watching and analyzing currency markets, I only can remember a few successful interventions for a persistent<\/em> support of a currency (which also the Riksbank should know!):<\/p>\n

\u00a4 either when several central banks acted together in a concerted action (by, e.g., the Plaza Accord),<\/p>\n

\u00a4 or\/and when a new direction of the currency already had become visible.<\/p>\n

The so-called Asian crisis in the end of the 1990s crisis may also help to support memory. I remember very well the comments by financial markets that large current-account deficits in Thailand and Malaysia at that time were not very challenging because of the relative high foreign reserves these two countries had. These buffers, however, did not prevent these two \u2013 and other \u2013 Asian countries from major falls of their currencies. Being under growing pressure can mean much faster currency outflows than initially expected.<\/p>\n

Sure, China still controls its cross-border capital flows \u2013 but China should not speed up cross-border capital deregulation too ambitiously. The main objective \u2013 also for the currency – should be for the time being to do everything possible to increase transparency, credibility of economic policy and statistics. These factors are, of course, interconnected.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

Hubert Fromlet<\/em><\/strong>
\n<\/em>Senior Professor of International Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n

 <\/p>\n

Back to Start Page<\/a>
\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

China\u2019s currency reserves are shrinking, in January again by almost USD 100 billion after an even somewhat higher amount in December. This means in absolute numbers a downturn from the peak of 3993 billion in June 2014 to 3230 billion in January this year \u2013 a downturn that is more than USD 750 billion! 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