Want to buy RUB/CNY directly? May soon be a possibility, the Russian central bank has told Chinese ambassador Li Hui. Xinhua reports a statement of intent from deputy head, Victor Melnikov, to the effect that Bank Rossii is willing to co-operate with China to effect a direct currency exchange between rouble and yuan.
Both countries are keen to deepen “financial co-ordination and mutual investment”, according to state-run media Xinhua. Dr Melnikov noted the economic and strategic significance of a direct exchange between the two currencies; the Chinese ambassador echoed these sentiments, and was keen to support Sino-Russian co-operation in economic, energy and science projects.
East Asian currencies are anything but stable viewed against the dollar: the Thai baht recently topped a 13-year high – and the yen and ringgit have both outpaced the baht’s rise so far this year. Viewed against each other, of course, these appreciating currencies are more stable.
New research challenges the habit of viewing all currencies against the dollar. It goes on to suggest that “considerable regional currency stability” can be achieved in east Asia if countries target the same basket of currencies as each other – even with no “explicit co-operation”.
China’s currency policy between mid-2006 and mid-2008 should be seen in this light, the paper argues; the simple view of the renminbi against the dollar does not explain the facts nearly as well. “The RMB behaved in this two-year period as if it were managed to appreciate gradually over time against its trade-weighted basket of currencies,” argue Guonan Ma and Robert N McCauley of BIS.
Somewhat as predicted, or at least predicted by me, Tim Geithner went as far as he could go in suggesting that various options were on the table for trying to push the Chinese into letting the exchange rate rise without giving any hostages to fortune.
The Murphy-Ryan bill (similar to Schumer-Graham in the Senate) got respectful attention and the possibility of support, though no commitment. Naming China as a currency manipulator, though, seems still to be off the table.
Whether prompted by inflation or politics, the yuan continues to strengthen, today at its highest level against the dollar since 1993. Seen in context, the strengthening is small – it’s the little squiggle on the far right of the chart, right. Compared to the currency’s ‘real’ value – according to the US – of USD1:RMB4-5, the shift is hard to spot.
But we have now seen five days of appreciation in a row, and the judicious appreciation of the Chinese currency makes good headlines, breaking records along the way. As Alan points out, it is likely to be just enough to deflect criticism at the G20. The chart below shows the daily midpoint set by Safe, the forex regulator, against the tolerance band of the original peg.
China will allow foreign central banks and overseas lenders to start investing in the country’s domestic interbank bond market for the first time, in a move aimed at encouraging internationalisation of the Chinese currency.
The People’s Bank of China, the central bank, said on Tuesday it had launched a pilot project to allow greater foreign access to its largely closed domestic interbank bond market in order to “encourage cross-border Rmb [renminbi] trade settlement” and “broaden investment channels for Rmb to flow back [to China]”.
It’s as if the depegging never happened: the latest exchange rate set by China places the value of the yuan squarely within its original trading bounds.
On June 18, when the yuan was still pegged, it was trading at 6.8275 per dollar, with a 0.5 per cent tolerance each side (blue lines). Since then, the daily midpoint, published by foreign exchange regulator Safe, has generally valued the currency very slightly stronger than its original band. Not today.
“If [the central bank] had raised the value of renminbi in March and raised interest rates in April, financial markets would have been more stable.” This from Japanese media Asahi Shimbun, interviewing Zhou Qiren, a member of the Monetary Policy Committee, an advisory body to the People’s Bank of China.
The short interview transcript is well worth a read. Mr Qiren also points out one obvious consequence of a more flexible, or floating, currency: its value may fall as well as rise. If exports were to start suffering, the yuan would weaken to help the economy, Mr Qiren said. So far, the value of the yuan has strengthened almost imperceptibly: the blue lines on the chart are the tolerance levels for the original value of the yuan on 19 June. (h/t Market Watch)
Is the People’s Bank of China planning to further liberate the yuan? The central bank has cut the commitment to “keep the yuan’s exchange rate basically stable” from its latest currency communique. The rest of the message repeated the existing policy, i.e. to improve the currency’s exchange rate mechanism, and adjust its value with reference to a basket of foreign currencies.
Although the currency’s peg was loosened on June 19, the daily midpoint set by Safe has barely strayed out of the tolerance levels of the original peg; the currency need only have been 0.3 per cent weaker to meet the original, pegged criteria. Against the US claims of the yuan’s ‘true value’, the currency’s ‘strengthening’ is barely discernible.
Who needs context? “Yuan ends near post-revaluation high,” runs one of many excitable headlines.
Since the great unpegging, the yuan hit a ‘peak’ of 6.7801 on Wednesday. That’s a peak-to-trough movement of 0.69 per cent in the past nine days. For comparison, the dollar-sterling exchange rate peak-to-trough movement has been four times that, at 2.9 per cent.