China gives currency more freedom with new reform

The legendary Jim Sinclair has predicted that the US dollar will undergo a significant decline beginning in June.  That is now less than a month and a half away.  New agreements bypassing the dollar for trade settlement are now appearing almost daily.  The yuan’s replacement of the US dollar as the world’s reserve currency takes another two steps forward.

(Reuters) – China took a milestone step in turning the yuan into a global currency on Saturday by doubling the size of its trading band against the dollar, pushing through a crucial reform that further liberalizes its nascent financial markets.

The People’s Bank of China said it would allow the yuan to rise or fall 1 percent from a mid-point every day, effective Monday, compared with its previous 0.5 percent limit.

The timing of the move underlines Beijing’s belief that the yuan is near its equilibrium level, and that China’s economy, although cooling, is sturdy enough to handle important, long-promised, structural reforms, analysts said.

The move would help China deflect criticism of its controversial currency policy ahead of the annual spring meeting of the International Monetary Fund in Washington next week.

A slowing world economy that has pared investor expectations of a steadily rising yuan likely also gave Beijing the confidence to proceed, knowing that a larger band would not necessarily lead to a stronger currency.

“The central bank chose a good time window to enlarge the trading band. The market’s expectation for a stronger yuan is weakening,” said Dong Xian’an, chief economist at Peking First Advisory in Beijing.

“The move partially clears away doubts on whether China can manage a soft landing in its economy, and makes clear China’s reform road map.”
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Comments

  1. This is interesting. If what Sinclair say is true, the I wonder where money will flow when the Spainish spiral picks up speed. As the Euro declines, will people/banks rush to Chinese Yuan or still to US Treasuries? This could truly be the turning point as not too may people want US Treasuries at the moment. 

  2. For years, Rothschild tools Bernanke and Geithner have taken every waking moment tosay that “currency manipulator” China needs to get with the program and revalue.

    Now it’s happening.  Now 3/4 of America won’t be able to buy cheaper products at Wal Mart, while we still can’t afford to employ anyone here to make the same stuff due to suicidal regulations.

    We got our wish, and I strongly suspect we won’t like it.

    Be careful what you wish for.

  3. Your spot on Cleburne61. The little dude running around Walmart will be raising prices rather than the price drops. Wonder how they’ll advertise that (NOT). 

  4. Here is a  good example of Reverse Gresham’s Law.  China is pushing out the dollar, fleeing  the reserve currency of the world while the Euro death spirals into irrelevancy. The wealth of the west is moving towards Asia as China builds a currency backed by gold.  It’s buying up commodities, mines, gold, silver and anything else it can to buffer itself from what it sees as an economic and financial collapse of the West. Since no one can predict how bad the fall will  be, China and its Eastern partners are preparing for the worst. China is also acquiring vital allies in the BRIC nations; ones that are resource rich and not so happy with the hegemonist West.  Australia, South Africa and even Japan will join in (if Japan survives the fallout from Fukushima). Hope for the best; plan for the worst.

      China will probably pick up the pieces as European countries and the Euro fails.  The Euro and Dollar failure are classic textbook examples of Gresham’s law and since  currency (real money)  abhors a vacuum China is doing whatever it can to protect its economic interests while filling this monetary void.  The Chinese know how to read history. They made a lot of it, along with the painful experience of paper money failures of their own.   I admire them even though it means we will be suffering.  It just the way things tend to work out.

     There’s going to be a lot of pain to go around since Europe is China’s largest trading partner and we are right behind them. I think China sees that it must build a lifeboat for 1.3 billion people.  To do otherwise would be insane.  With Europe in recession with some parts , such as Spain, Greece and Portugal in a depression,  China will have to take its lumps. The degree of pain will be a function of how quickly and well it puts its house in order and puts its currency in the forefront of the world financial system.

     It’s population is not entirely self sufficient and resilient but it can take more hits since it has not fallen into the degenerate ways of the FIAT economies of the West.   It’s pretty clear China is shedding our dollars as fast as it can without causing a dollar collapse but they still know when to sell a losing proposition such as their trillion plus of dollar holdings.  The on going losses in the dollar and Euro are sunk costs.  If they must be written off they will be, just like the residual costs of a failed investment. 

    They are not going to bail us out, or Europe for that matter.  We are going to be on our own despite Tiny Tim’s begging bowl trips to the Middle Kingdom.  They know that it’s imprudent to try to catch falling pianos.  But there will be some real bargains once the crash happens.  They simply wait for the opportunity and swoop in.

    The one thing I don’t know how to factor in is what part the Rothchilds will play in this.  I surmise they are seeing the same thing  here.  China is ascendent, the West is descending.  Their merger of the London and French banks is telling as they try to get their financial empire out of harm’s way.  Maybe they’ll just chop up the swap meet asset sales of the west between themselves. 

  5. This is kinda long, but very provocative; Found some time here was very
    well spent. Couldn’t help remember how the Chinese laughed at Geithner.

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