LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - Document
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
March 2, 2005 Wednesday
London Edition 1
SECTION: FT MARKETS; Pg. 46
LENGTH: 399 words
HEADLINE: China buys big to sustain dollar peg
BYLINE: By STEVE JOHNSON
BODY:
The scale of the upward pressure on the renminbi was highlighted yesterday when the People's Bank of China revealed it spent Rmb1,610bn (Dollars 195bn) on buying foreign currency last year.
The figure was 40 per cent greater than in 2003 as hot money flows poured into China, with speculators gambling on a renminbi revaluation in spite of the country's strict capital controls.
To maintain the renminbi's decade-old peg of Rmb8.276 to Rmb8.28 against the dollar, the People's Bank needed to counterbalance not only this hot money but booming foreign direct investment inflows.
"If such a startling figure does not convey the sheer scale of the bank's daily mandated operations in keeping the peg, the fact that this is a 40 per cent rise over the cumulative total for 2003 may well do," said Neil Mellor, currency strategist at Bank of New York. "The enormity of these flows is indicative of the forces waged against the bank."
The Dollars 195bn of intervention tallies closely with the Dollars 206.7bn increase in China's foreign exchange reserves to Dollars 610bn last year. This indicates that the vast bulk of Beijing's reserves remain in dollars; significant positions in currencies such as euros or sterling would have seen reserve growth far outstrip intervention last year
as these currencies appreciated markedly against the dollar.
The scale of the hot money inflows into China indicates the dilemma Beijing faces in easing the renminbi's dollar peg, which it has repeatedly promised to do.
A modest revaluation may be seen as increasing the chances of further small steps, thus eliciting even greater speculative flows.
"A 5 per cent revaluation may be seen as being the thin end of the wedge," said Aziz McMahon, currencies strategist at ABN Amro. "Speculators may think this is a one-way bet and flows could double again."
The PBoC chose to sterilise less than half of its intervention, draining a net Rmb669bn from the banking system through its open market operations.
Yet despite the subsequent rise in its monetary base of almost Rmb1,000bn, inflation has fallen from 5.3 per cent in August to 1.9 per cent in January, although concerns about asset bubbles remain, while gross domestic product growth remains high, at 9.5 per cent.
Beijing's ability to keep inflation under control has lessened the likelihood of a near-term revaluation of the renminbi, at least in the eyes of speculators.
LOAD-DATE: March 1, 2005
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
March 2, 2005 Wednesday
London Edition 1
SECTION: FT MARKETS; Pg. 46
LENGTH: 399 words
HEADLINE: China buys big to sustain dollar peg
BYLINE: By STEVE JOHNSON
BODY:
The scale of the upward pressure on the renminbi was highlighted yesterday when the People's Bank of China revealed it spent Rmb1,610bn (Dollars 195bn) on buying foreign currency last year.
The figure was 40 per cent greater than in 2003 as hot money flows poured into China, with speculators gambling on a renminbi revaluation in spite of the country's strict capital controls.
To maintain the renminbi's decade-old peg of Rmb8.276 to Rmb8.28 against the dollar, the People's Bank needed to counterbalance not only this hot money but booming foreign direct investment inflows.
"If such a startling figure does not convey the sheer scale of the bank's daily mandated operations in keeping the peg, the fact that this is a 40 per cent rise over the cumulative total for 2003 may well do," said Neil Mellor, currency strategist at Bank of New York. "The enormity of these flows is indicative of the forces waged against the bank."
The Dollars 195bn of intervention tallies closely with the Dollars 206.7bn increase in China's foreign exchange reserves to Dollars 610bn last year. This indicates that the vast bulk of Beijing's reserves remain in dollars; significant positions in currencies such as euros or sterling would have seen reserve growth far outstrip intervention last year
as these currencies appreciated markedly against the dollar.
The scale of the hot money inflows into China indicates the dilemma Beijing faces in easing the renminbi's dollar peg, which it has repeatedly promised to do.
A modest revaluation may be seen as increasing the chances of further small steps, thus eliciting even greater speculative flows.
"A 5 per cent revaluation may be seen as being the thin end of the wedge," said Aziz McMahon, currencies strategist at ABN Amro. "Speculators may think this is a one-way bet and flows could double again."
The PBoC chose to sterilise less than half of its intervention, draining a net Rmb669bn from the banking system through its open market operations.
Yet despite the subsequent rise in its monetary base of almost Rmb1,000bn, inflation has fallen from 5.3 per cent in August to 1.9 per cent in January, although concerns about asset bubbles remain, while gross domestic product growth remains high, at 9.5 per cent.
Beijing's ability to keep inflation under control has lessened the likelihood of a near-term revaluation of the renminbi, at least in the eyes of speculators.
LOAD-DATE: March 1, 2005
posted by Eastlaw at 2:06 AM
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