LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - Document
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: LEX COLUMN; Pg. 14
LENGTH: 247 words
HEADLINE: Managed floats THE LEX COLUMN:
BODY:
The history of managed floats is not a happy one. Japan, more than most, still bears the scars. Rapid appreciation, touched off by the Nixon shock in 1971 and compounded by the 1985 Plaza Accord, was followed by massive asset bubbles and eventually Japan's "lost decade".
There is little likelihood of China treading a similar path, however, with its respect for history and the tools to avoid many of the pitfalls. Unlike Japan, its initial reluctance to adopt a more flexible currency regime has not sparked strong inflation - indeed, price growth is comfortably low. China is moving from a platform of strength, and has conceded little - a one-off 2.1 per cent appreciation and managed float against an undisclosed basket of currencies. Armed with capital controls and cash, it still calls the shots. Yesterday, the renminbi remained at its new peg of 8.11 to the dollar, thanks to hefty central bank intervention.
But asset bubbles will still flourish. Speculative flows into Asian assets have started to return, banking on currency appreciation across the region. Hong Kong, in particular, looks vulnerable. Liquidity targeting China's capitalist enclave as a renminbi proxy drives interest rates lower, fuelling further demand for Hong Kong stocks and property - and, paceJapan, raising the spectre of bad loans when the trend reverses. Nascent property bubbles in Shanghai and South Korea are likely to inflate further. Even the best-managed float cannot eliminate speculation.
LOAD-DATE: July 22, 2005
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: LEX COLUMN; Pg. 14
LENGTH: 247 words
HEADLINE: Managed floats THE LEX COLUMN:
BODY:
The history of managed floats is not a happy one. Japan, more than most, still bears the scars. Rapid appreciation, touched off by the Nixon shock in 1971 and compounded by the 1985 Plaza Accord, was followed by massive asset bubbles and eventually Japan's "lost decade".
There is little likelihood of China treading a similar path, however, with its respect for history and the tools to avoid many of the pitfalls. Unlike Japan, its initial reluctance to adopt a more flexible currency regime has not sparked strong inflation - indeed, price growth is comfortably low. China is moving from a platform of strength, and has conceded little - a one-off 2.1 per cent appreciation and managed float against an undisclosed basket of currencies. Armed with capital controls and cash, it still calls the shots. Yesterday, the renminbi remained at its new peg of 8.11 to the dollar, thanks to hefty central bank intervention.
But asset bubbles will still flourish. Speculative flows into Asian assets have started to return, banking on currency appreciation across the region. Hong Kong, in particular, looks vulnerable. Liquidity targeting China's capitalist enclave as a renminbi proxy drives interest rates lower, fuelling further demand for Hong Kong stocks and property - and, paceJapan, raising the spectre of bad loans when the trend reverses. Nascent property bubbles in Shanghai and South Korea are likely to inflate further. Even the best-managed float cannot eliminate speculation.
LOAD-DATE: July 22, 2005
posted by Eastlaw at 12:50 AM
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