China switches currency link from dollar to basket of currencies - jul - 25, 2005
Dear Crowne Gold Clients;
Sean Trainor, President of Crowne Gold, Inc.
By Stephanie Hoo
Thursday, July 21, 2005
BEIJING -- China dropped its politically volatile policy of linking
its currency to the U.S. dollar but retained controls on its
exchange rate, switching the link to a basket of foreign currencies
in a move that could push up the price of Chinese exports to the
United States and Europe.
China strengthened the state-set exchange rate of the yuan currency
to 8.11 to the U.S. dollar from 8.277, where it had been fixed for
more than a decade, the government said in a surprise announcement
on state television's evening news. That raised the value of one
yuan by about one-quarter of one U.S. cent to 12.33 cents.
China had been under pressure for years from its trading partners to
let the yuan float or at least to raise its exchange rate. The
United States and others said it undervalued the yuan by up to 40
percent, giving Chinese exporters an unfair price advantage.
The change Thursday appeared to be too small to satisfy the United
States or other governments, which say inexpensive Chinese imports
are threatening thousands of jobs.
"This is the start of a gradual appreciation process," said Frank
Gong, managing director of JPMorgan Chase & Co. in Hong Kong. "It
will help balance Chinese trade flows. Export volumes will come
down. Import volumes will pick up. It will help reduce trade
Malaysia simultaneously announced it was dropping its own policy
tying its currency, the ringgit, to the U.S. dollar and would adopt
a similar arrangement.
Some U.S. lawmakers had threatened to impose retaliatory tariffs if
China didn't adjust its yuan trading scheme.
The yuan will now be allowed to trade in a tight 0.3 percent band
against a basket of foreign currencies, the government said. It
didn't say which currencies.
It said the central bank would announce the yuan's closing price
each day, and that rate would be the midpoint of the next day's
Chinese leaders have said for years that they eventually would let
the yuan trade freely on world markets. But they said any decision
would be based on China's economic needs, not foreign pressure.
Chinese officials said any abrupt change in its currency system
would cause turmoil, hurting its fragile banks and financial
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