Why the New Flexibility of the Yuan Will Not Mean its Appreciation, Nor Gold's Fall in the Yuan
With China dropping the 'peg' to the U.S. $, the financial world is expecting it to appreciate up to 30% over time. But we don't expect this at all. China has interests and will do no-one favors unless they are in China's interests. There are some who say it is in China's interests as they may well need to cap rising inflation or cheapen imports. More expensive Chinese exports can still effectively penetrate world markets? But China is a very different economy to any in the West and economic rules that apply to the West have to be modified in the East. So, what will happen to the Yuan now?"
What was said by China?
A
narrowing balance-of-payments gap indicates that there's no basis for "large-scale
appreciation" by the Yuan, the Chinese central bank said. The Chinese version
said no "large-scale volatility [Continued emphasis would be placed to reflecting
market supply and demand with reference to a basket of currencies]. It ruled
out a one-time revaluation, saying there is no basis for "large-scale appreciation," and
kept the Yuan's 0.5% daily trading band unchanged. Today it moved from last
weeks Y6.8160 to Y6.7980 as a reaction to the news and the latest Yuan daily
fix by the central bank. Why? "The recovery and upturn of the Chinese economy
has become more solid with the enhanced economic stability," the People's Bank
of China said [[China's inflation rate jumped to a 19-month high of 3.1% in
May. China's overseas sales jumped 48.5% in May from a year earlier]. "It is
desirable to proceed further with reform of the Yuan exchange-rate regime and
increase the Yuan exchange-rate flexibility. Chinese companies will have time
to adapt to Yuan changes and the bank reaffirmed a government policy of "gradualism" in
exchange-rate reform. Increased Yuan flexibility and "two-way movements" by
the currency will aid management of the economy".
There is very little here to suggest a big appreciation. But there is a great deal here to suggest a nearby move in the internationalization of the Yuan! The scope of conjecture that comes out of such a statement could point to many avenues of development, but all point to the arrival of the Yuan on the international scene.
Why no appreciation
The
benefits, as argued in the media, could be beneficial, for sure. But all tend
to look to the benefits that the States and other countries would enjoy, as
a reason for such opinions. Now stand in Beijing and place yourself as head
of potentially an economy equal to that of Europe and Asia put together. You
have the potential for huge unrest inside this burgeoning economy as the poor
'have not' look at the new 'haves' and want some of the action. This is a fear
of central government and one that they are acting on. They want development
to spread right across China. They will harness all facets of their country
to achieve these objectives. They do have considerably more power to reach
this gold than any other government on earth. So when they say that they, "it
is desirable to proceed further with reform of the Yuan exchange rate regime
and increase the Yuan exchange rate flexibility...." We believe that there
is far more to this than simply releasing the exchange rate. The pressure from
the U.S. on the exchange rate will perhaps accelerate the process of internationalization
of the Yuan, but with it should come with a lot of downward pressure on
the Yuan.
Where will the Gold Price, in the Yuan, go now?
Having
said all the above, we have to ask you if you expect the Chinese government
to promote gold so strongly to its citizens, then knowingly engineer a fall
in the Yuan price of gold?....Subscribers only - Subscribe
through www.GoldForecaster.com
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Author: Julian D. W. Phillips
Julian D. W. Phillips
Gold-Authentic Money
"Global Watch: The Gold Forecaster" covers the global gold market.
It specializes in Central Bank Sales and details, the Indian Bullion market
[supported by a leading Indian Bullion professional], the South African markets
[+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $,
Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the
influential gold price factors across the globe, so as to truly understand
the global reasons behind the gold price.
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