China Talks, Asia Listens

Here’s why China’s move is a step toward the yuan becoming a major world currency. First, People’s Bank now can act like a central bank, not just a foreign outpost of the U.S.Federal Reserve. Until now, PBOC had to stabilize the yuan by buying huge amounts of dollars from exporters in exchange for the Chinese currency every time the dollar weakened – often in response to Fed moves. It then had to mop up all those excess yuan in the Chinese financial system by selling short-term notes and bonds to banks, or run the risk of a runaway money supply and inflation. Also, China has been powerless to stop its currency from moving in lockstep with the dollar against other major currencies such as the euro and yen. But with a basket system that includes, say, the dollar, yen, euro, and key Asian currencies, it can juggle the weightings to keep its trade competitiveness more broadly in control. The yuan might strengthen against the dollar but fall against the yen and euro. This makes sense, since China trades everywhere – not just with the U.S. Its biggest trading partner as of mid-2005 was the euro zone, followed by the U.S., Japan, and Southeast Asia.

Second, China now has an arsenal to use against speculators. By not disclosing the contents of its basket, it leaves markets uncertain about the timing of future yuan revaluations. True, in the short term this may open the door to more currency speculation among those expecting a further pop in the yuan-dollar rate. But for the longer term, speculators used to making big and destabilizing one-way bets on the currency based only on dollar movements will need to think twice. After all, Beijing still sets foreign currency rate – not the open market.

Thousands of businesses are sifting through the implications of the Chinese move. So are the nation’s Asian neighbors, which already seem to be resetting their clocks to the Chinese sundial. It is no coincidence that Malaysia dropped its seven-year peg to the dollar movements after the People’s Bank made its announcement. The Bank Negara Malaysia will now manage the ringgit against a basket of key currencies that include the yuan, dollar, euro, Japanese yen, and the Singaporean, Australian, and Canadian dollars.

Will all this turn the yuan into a super-currency soon? No, but to be a true global player you need economic power, global ambitions, and the willingness to trade your currency freely. China has the first two requirements in spades. Slowly, it is working on the third. With so much intra-Asian trade being driven by China, its notes have begun to emerge as a key proxy currency for regional central banks. China’s growing trade clout may also mean mainland companies will no longer be willing to pay for 80% of its trade in dollars. Instead, they may insist on being paid in yuan – and let the other party worry about exchange risk. Longer term, the yuan may catch on as a viable dollar alternative among Asian central banks in a way Japan’s yen never did. “Within a year or two, many Korean and Chinese companies will use the yuan and the won to settle trade between them,” says Hwang Yoon Jin, senior researcher at the state-funded Korea Institute for Industrial Economics & Trade.

But to really get yuan circulating internationally – and hence qualify as a big league currency – Beijing will need to lift its ban on investment by private Chinese citizens in overseas stocks, bonds, and real estate. Until then, the yuan shift by Beijing will look like a very modest development. Yet in the fullness of time, the death of the yuan-dollar peg may well be remembered as a defining moment in China’s economic ascendancy. The age of the yuan may come sooner than anyone thinks.

Business Week, 2005

Notes

1. a global monetary power – государство, играющее важную роль в мировойденежной системе
2. a rip-roaring economy =booming economy
3. it involves China –здесь: это произошло в Китае
4. that punches way above its weight when it comes to… -которая обладаетнапористостью, не соизмеримой с ее экономической мощью, еслиговорить о...
5. to mop up –ликвидировать избыток (валюты в финансовой системе)
6. to juggle the weightings –менять курс юаня по отношению к одной извалют, входящих в корзину (Сравните: to tinker with the value of its currency vis-à-vis others)
7. as of mid-2005 –по состоянию на середину 2005 года
8. a pop =a rise
9. are sifting through the implications -=are analysing the effects (consequences)
10. ringgit –ринггит (валюта Малайзии)
11. a short-term note –краткосрочная ценная бумага, выпускаемаяправительством
12. won –вона (южно-корейская валюта)
13. to settle trade – при торговых расчетах

Vocabulary

to peg the currency –привязать национальную валюту к валюте другойстраны

to untether the currency – отменить привязку валюты к другой

to revalue a currency – ревальвировать валюту; revaluation – ревальвация

to adjust the money’s value based on a basket of currencies = to peg the currency to a basket of currencies – рассчитывать курс валюты на основе корзины валют основных торговых партнеров страны

to float the currency – ввести плавающий курс валюты; currency floating = floating exchange rate – плавающий валютный курс, уровень которого определяется на рынке под воздействием спроса и предложения

currency appreciation – повышение, рост курса валюты; to appreciate the currency – повысить курс валюты; to depreciate the currency – снизить курс валюты

to weaken (the currency) – снизиться (о курсе валюты)

clout – влияние; trade clout – влияние в торговле

to circulate - обращаться (о валюте)

currency speculation – валютная спекуляция

proxy currency – здесь: ценная бумага, обладающая функциями валюты