China Revalues Yuan

[baht&sold]

July 21, 2005: 7:22 AM EDT CNN Money link

SHANGHAI (Reuters) - China scrapped the yuan's peg to the U.S. dollar Thursday and tied it to a basket of currencies, the central bank said, the first steps in highly anticipated reforms aimed at letting the currency float freely.

The new yuan rate versus the dollar revalues the currency by 2.1 percent, to 8.11 per U.S. dollar as of 7 a.m. ET, the central bank said on its Web site.

Under the previous policy, the yuan was kept near 8.28 per dollar, a virtual peg that had led the United States and other countries to complain that China's currency was unfairly undervalued.

The changes came amid intense speculation that Beijing would overhaul its currency regime, which had been basically unchanged since the 1997/98 Asia crisis

------

I'll leave speculation to harmonica's abacus and no, I don't think Scampy's simultaneous arrival in China is anything other than a mere coincidence...

Edited July 21, 2005 by baht&sold

[Harmonica]

July 21, 2005: 7:22 AM EDT CNN Money link

SHANGHAI (Reuters) - China scrapped the yuan's peg to the U.S. dollar Thursday and tied it to a basket of currencies, the central bank said, the first steps in highly anticipated reforms aimed at letting the currency float freely.

The new yuan rate versus the dollar revalues the currency by 2.1 percent, to 8.11 per U.S. dollar as of 7 a.m. ET, the central bank said on its Web site.

Under the previous policy, the yuan was kept near 8.28 per dollar, a virtual peg that had led the United States and other countries to complain that China's currency was unfairly undervalued.

The changes came amid intense speculation that Beijing would overhaul its currency regime, which had been basically unchanged since the 1997/98 Asia crisis

------

I'll leave speculation to harmonica's abacus  and no, I don't think Scampy's simultaneous arrival in China is anything other than a mere coincidence...

Hehehehe

All h*ll has broken loose in asian currencies and the USD, which was already in a correction is taking it on the chin.

Waiting for the dust to settle.

Just yesterday I heard that US expects China's economy to beat their own in 11 years @ the current 9.5% growth rate.

Uncle George has a new strategy (or is it old?) -- he's courting India in a determined way.

[Firefan]

The impact of this move (when Yuan trades freely) will be huge. Could be rampant inflation for one, as the inflation in the Western world have been held artificially low by factories in China willing to sell cheap widgets due to their artificially low exchange rate.

Also; since all other Asian countries have also kept their currencies artificially low (in order to compeed with China) we might see a strengthening of Asien currencies across the board - The Malay Ringit have also now dis-connected from the USD. Cheers!

[Thaiquila]

So any opinions about the effect on the baht?

This article says it will mean a stronger Phil Peso, so can we assume the baht will strengthen also?

http://www.ajc.com/business/content/shared...a_Currency.html

"The governor of the Bank of Thailand held an urgent meeting with other senior central bank officials as soon as they learned of the news, but no details of their meeting were immediately available."

[baht&sold]

Most are scurrying about, concerned with worrying issues in the "news du jour", like Bird flu, southern unrest in Thailand, or even a Tsunami repeat- some fears deserving varying degress of merit than others (the sky is NOT falling tho, imho;)

Meanwhile, I suspect few others aren't distracted, rather focused and preparing for the reality of Oil reaching $100 usd a barrel (not IF but WHEN) and the start of the Chinese Yuan devalutaion, marking the beginning of the end of what is considered current reality... (if only I had the capital to spare)

In recent years the mantra was: "Think outside the box" now, increasingly imho, "Think beyond your bunker"- of fears!

Me? I just want to enjoy life

Edited July 21, 2005 by baht&sold

[OldAsiaHand]

... (if only I had the capital to spare)

<{POST_SNAPBACK}>

Don't keep us in suspense. If you did, exactly how would you allocate it?

[baht&sold]

... (if only I had the capital to spare)

<{POST_SNAPBACK}>

Don't keep us in suspense. If you did, exactly how would you allocate it?

<{POST_SNAPBACK}>

OAH, I respect your record on what I've seen of your posts- respect mine when I say, my record as a businessman would not impress many. I'll keep my hypothetical strategies to myself, since strategies without capital are akin to "armchair" (or in this case keyboard;) fiscal weekend warriors....

I therefor refer further advice to the Harmonica's/Soros's of the world.

Edited July 21, 2005 by baht&sold

[Harmonica]

... (if only I had the capital to spare)

Don't keep us in suspense. If you did, exactly how would you allocate it?

OAH, I respect your record on what I've seen of your posts- respect mine when I say, my record as a businessman would not impress many. I'll keep my hypothetical strategies to myself, since strategies without capital are akin to "armchair" (or in this case keyboard;) fiscal weekend warriors....

I therefor refer further advice to the Harmonica's/Soros's of the world.

That's twice in a 36-hr period you've called me by name!

If you're going to propose, I prefer the direct approach instead of the sneaky one!

[ray23]

... (if only I had the capital to spare)

<{POST_SNAPBACK}>

Don't keep us in suspense. If you did, exactly how would you allocate it?

<{POST_SNAPBACK}>

OAH, I respect your record on what I've seen of your posts- respect mine when I say, my record as a businessman would not impress many. I'll keep my hypothetical strategies to myself, since strategies without capital are akin to "armchair" (or in this case keyboard;) fiscal weekend warriors....

I therefor refer further advice to the Harmonica's/Soros's of the world.

<{POST_SNAPBACK}>

That's twice in a 36-hr period you've called me by name!

If you're going to propose, I prefer the direct approach instead of the sneaky one!

<{POST_SNAPBACK}>

This is another one of those posts where I'm trying to get on the thread and learn. That being said I amazed that the baht went to 39 yesterday afternoon and back to 41 this morning. I'm also amazed that I actually have time now to watch this kind of thing.

[Harmonica]

... (if only I had the capital to spare)

Don't keep us in suspense. If you did, exactly how would you allocate it?

OAH, I respect your record on what I've seen of your posts- respect mine when I say, my record as a businessman would not impress many. I'll keep my hypothetical strategies to myself, since strategies without capital are akin to "armchair" (or in this case keyboard;) fiscal weekend warriors....

I therefor refer further advice to the Harmonica's/Soros's of the world.

That's twice in a 36-hr period you've called me by name!

If you're going to propose, I prefer the direct approach instead of the sneaky one!

This is another one of those posts where I'm trying to get on the thread and learn. That being said I amazed that the baht went to 39 yesterday afternoon and back to 41 this morning. I'm also amazed that I actually have time now to watch this kind of thing.

Ray,

Where did you see Baht @ 39 yesterday?

[ray23]

... (if only I had the capital to spare)

<{POST_SNAPBACK}>

Don't keep us in suspense. If you did, exactly how would you allocate it?

<{POST_SNAPBACK}>

OAH, I respect your record on what I've seen of your posts- respect mine when I say, my record as a businessman would not impress many. I'll keep my hypothetical strategies to myself, since strategies without capital are akin to "armchair" (or in this case keyboard;) fiscal weekend warriors....

I therefor refer further advice to the Harmonica's/Soros's of the world.

<{POST_SNAPBACK}>

That's twice in a 36-hr period you've called me by name!

If you're going to propose, I prefer the direct approach instead of the sneaky one!

<{POST_SNAPBACK}>

This is another one of those posts where I'm trying to get on the thread and learn. That being said I amazed that the baht went to 39 yesterday afternoon and back to 41 this morning. I'm also amazed that I actually have time now to watch this kind of thing.

<{POST_SNAPBACK}>

Ray,

Where did you see Baht @ 39 yesterday?

<{POST_SNAPBACK}>

The site FX History http:// www.oanda.com/convert/fxhistory

Was at 42 in the morning dropped to 39 after the news and back to 41 today

Edited July 22, 2005 by ray23

[expatinasia]

The small revaluation of the Chinese RMB is only the beginning, and you can expect others over the next few months.

[TokyoT]

I am a little confused by what seems to be conflicting information. Many headlines indicated China has ended the peg to the dollar and are tying the Yuan to a basket of currencies. In the same articles or news reports they go on to basically indicate that China has only moved the peg from 8.28 to 8.11.

If China is indeed going to tie the Yuan to a basket of currencies does this not imply it will float some against the dollar? And can anyone tell me what currencies are included in this basket? Has the peg really been lifted or only shifted?

[TRIPxCORE]

Bottom line is the revaluation is ultimately USD negative.

[Thaiquila]

Obviously the more China free floats their currency and does not peg to the dollar, the weaker the dollar will be to the Yuan.

There is talk now that Walmart in the US could be devastated if this happens, because they are so big, they rely almost totally on cheap Chinese imports, and they have razor thin margins.

This leads me to believe that it is not in the interest of any country for China to make a radical change quickly, it will hurt a lot of people everywhere.

But this trend is probably going to continue.

What I am confused about is the effect on baht vs. US dollar. The baht is not pegged to the dollar, and I would assume Thailand has a lot of trade with China, so it seems to me that the long term effect on the baht dollar relationship is more complicated and maybe a little harder to predict.

[Firefan]

My view is that the THB will strengthen on this news. I fully agree with Thaiquilla that China is smart enough to make it a slow process to not kill their main markets.

It is actually a funny case of USA finally getting what it asked for and later realizing that they did not want it at all! Carefull what you wish for!

To believe that US production would EVER be able to compeed with low cost(wages Etc.) production in China - just through an adjustment of the Yuan was naive at best - instead the US and EU will now see rapid increases in costs/prices as the "Walmart effect" is being killed - as that was the main reason for the artificially low inflation nos we have seen in the Western world lately.

As for the THB it will surely strengthen - it has been kept artificially low for a loooong time in order to be able to compeed with China.

Where to put your money now? Anything based in Asian currencies really - emerging market bond funds, cash and naturally also commodities and metals. Emerging market equities are also interesting but as their main markets feel the punch of inflation they could take a hit.

I am personally overweight in Asia and underweight EU/US.

Meanwhile the inter asia markets are growing and can ensure demand continues even with a US/EU drop.

Disclaimer: I have been wrong before!

Cheers!

Edited July 22, 2005 by Firefan

[Thaiquila]

Firefan,

Are you saying the US dollar will stop being the world reserve currency in the near or medium term, because I don't quite see that yet.

With the EU having problems recently, the US dollar still seems to fill that role for the world.

Edited July 22, 2005 by Thaiquila

[Firefan]

My belief is that the USD will continue for a while longer to be the reserve currency of the world. I would prefer it was gold so governments could not just print away as they ALL do today (US being the worst culprit).

Whatever the reserve currency is, I worry mostly about maintaining my BUYING POWER and therefore hold my investments in a basket of currencies/commodities.

Cheers!

[quiggs]

Number one, it's no secret that the US, and India are becoming Strategic Partners due to Chinas ascent. This is almost outwardly stated...

I have never heard any estimate that puts the Chinese economy at the US size in 11 years, and a sustained 9% growth that long is not probable, anyway. The firgure I have heard is that if they do everything PERFECT, they may catch the US in 25-30 years. MAYBE, with allot of "ifs".

I wonder why it is assumed that it will be smooth sailing? Noone expects smooth sailing for any other economy in the world.

July 21, 2005: 7:22 AM EDT CNN Money link

SHANGHAI (Reuters) - China scrapped the yuan's peg to the U.S. dollar Thursday and tied it to a basket of currencies, the central bank said, the first steps in highly anticipated reforms aimed at letting the currency float freely.

The new yuan rate versus the dollar revalues the currency by 2.1 percent, to 8.11 per U.S. dollar as of 7 a.m. ET, the central bank said on its Web site.

Under the previous policy, the yuan was kept near 8.28 per dollar, a virtual peg that had led the United States and other countries to complain that China's currency was unfairly undervalued.

The changes came amid intense speculation that Beijing would overhaul its currency regime, which had been basically unchanged since the 1997/98 Asia crisis

------

I'll leave speculation to harmonica's abacus  and no, I don't think Scampy's simultaneous arrival in China is anything other than a mere coincidence...

<{POST_SNAPBACK}>

Hehehehe

All h*ll has broken loose in asian currencies and the USD, which was already in a correction is taking it on the chin.

Waiting for the dust to settle.

Just yesterday I heard that US expects China's economy to beat their own in 11 years @ the current 9.5% growth rate.

Uncle George has a new strategy (or is it old?) -- he's courting India in a determined way.

<{POST_SNAPBACK}>

[~G~]

To Harmonica:

Following the discussion we had in another thread about Events, Mass Social Mood and Trends, I believe this is a good example of a sudden Event causing a Trend, rather then MSM creating Trend. Tech. Analysis relies on MSM reflected in the graphs, but what happens when a new piece of information that was previously not known to the Masses is being discovered?

Regarding international trade, importing some goods from China myself, I am a bit concerned about the prices. As to export, this might help Thailand compete with china, as the change of US dollar/Yuan will probably be greater then Us Dollar/ Baht.

[Dakhar]

It is China's turn again.

Also oil is priced witht the USD, this will mean that China's purchasing power will be greater. They can now buy more, use more etc. on a cheaper scale. So whatever slight chance Thialand may of had for a better economy due to China's actions.... will not be realized. There will be more oil consumption, and an increase in the costs of oil, thus having an negative impact.

Good luck to everyone.

[Harmonica]

Number one, it's no secret that the US, and India are becoming Strategic Partners due to Chinas ascent. This is almost outwardly stated...

I have never heard any estimate that puts the Chinese economy at the US size in 11 years, and a sustained 9% growth that long is not probable, anyway . The firgure I have heard is that if they do everything PERFECT, they may catch the US in 25-30 years. MAYBE, with allot of "ifs".

I wonder why it is assumed that it will be smooth sailing? Noone expects smooth sailing for any other economy in the world.

-------------------------

You would have heard it loud and clear if your were tuned into the major channels -- Uncle George himself said it, loud and clear -- could I have misduplicated? ... slim odds, but they certainly exist!

[britmaveric]

I think one forgets China is just one country - there are many other sources where cheap goods are produced in Asia. Also I think a good portion of Walmart's products are produced in central/south america.

[Rinrada]

Number one, it's no secret that the US, and India are becoming Strategic Partners due to Chinas ascent.

they may catch the US in 25-30 years. MAYBE, with allot of "ifs".

I wonder why it is assumed that it will be smooth sailing? Noone expects smooth sailing for any other economy in the world.

So it looks like one day the mighty Greenback $ could be pegged against the YUAN.

Under the previous policy,as said above the yuan was/has been kept near 8.28 to the dollar and as from yesterday it is now 8.11.... whats the future?

8-7-6-5-4-3-2-1......and then...

[Harmonica]

To Harmonica:

Following the discussion we had in another thread about Events, Mass Social Mood and Trends , I believe this is a good example of a sudden Event causing a Trend, rather then MSM creating Trend. Tech. Analysis relies on MSM reflected in the graphs, but what happens when a new piece of information that was previously not known to the Masses is being discovered?

G,

Not true! See evidence below in the chart.

The US Dollar Index had already started a correction on July 8 . No talk of Yuan or even Don Juan at that time! Yuan news came out on July 21

Events only happen in line with the existing TREND!

The existing trend as of the TOP on July 8 is a wave 4 downward correction OR it could also be an actual intermediate-term correction of the $ -- either way it is a downward, negative correction! So there is NO violation of the rule!

The 2 trends we are speaking of here are (1) short-term & (2) intermediate-term.

As you will see in the chart the intermediate-term trend is not even threatened just yet, as the uptrend line has not even been approached!

And generally speaking, there is a possibility that an event can occur within minutes of an actual long-term trend change -- but such can only be verified after the fact and with the help of real-time data. But, historically to date no violation that I'm aware of, has occurred!

[Braccobaldo]

I am a little confused by what seems to be conflicting information.  Many headlines indicated China has ended the peg to the dollar and are tying the Yuan to a basket of currencies.  In the same articles or news reports they go on to basically indicate that China has only moved the peg from 8.28 to 8.11. 

If China is indeed going to tie the Yuan to a basket of currencies does this not imply it will float some against the dollar?  And can anyone tell me what currencies are included in this basket?  Has the peg really been lifted or only shifted?

<{POST_SNAPBACK}>

China is starting "to play on economic field with the same rules overall accepted"..this is a very very good sign that can lead to golden times..actually they had more shifted than lifted by 2% the peg...but this is a clear sign that slowly yuan will float freely...regarding the basket, is not important.

[griser]

All this talk of the dollar going down... hogwash!

Take a look at the result of the Chinese repegging the yuan. The US ecomony will will INCREASE due to this change, Manufacturing jobs in the US will be on the rise to compensate for the lost imports from china.

A currencies valuation is based mostly on the robustness of the ecomomy of the country it comes from. Once the ecomomy in the US increases due to this change the Value of the Dollar will go up.

That is thinking on the long term of course not the short term.

Greg

[Firefan]

Griser; you might be right.

Problem is that the production costs in USA as well as EU is SO much higher that even a 10% stronger Yuan will not change the sourcing countries much. Instead the increase in costs of the imported goods will be relayed to the end consumers in US/EU which means reduced demand of goods and services (most have already tapped out their housing with more loans).

On the positive side; the extra income in China/Asia will in return increase demand for imported goods from US/EU so hopefully this will assist in making the transition to a liquid Yuan as smooth as possible. Cheers!

[Tiger7Moth]

<{POST_SNAPBACK}>

From what I saw, initially the change in value of the baht exactly mirrored the Yuan (about 2%).

I know very little about foreign exchange but was under the impression that the value of the baht had been falling due to negative conditions within Thailand (foreign trade deficit, continued disappointment in revenues from tourism, trouble in the South, etc.).

Thailand seems to continue to have problems - just read on this forum that the new airport will most likely be delayed again and not open until this time next year.

So, it would seem reasonable to expect that the most important factor going forward for the baht will be the Thailand economy - perhaps with a small incremental positive when the Yuan makes further slow revaluations.

By the way, haven't read much about the "basket" of currency China will be using but if the $ is 90% of the basket, not much change at all I would think. Anyone know the position of the $ in the basket?

[Tiger7Moth]

<{POST_SNAPBACK}>

<{POST_SNAPBACK}>

One other consideration, I have read recently that Thailand was loosing jobs to China because China has lower cost. If the change in the Thai baht mirrors the change in the Yuan, as it has so far, the relative cost remains the same. So, this would seem to continue to keep Thailand at an disadvantage and potentially be negative for the Thai economy in the future (China is more of a competitor than the US). So, wouldn't this bode poorly for the baht long term?