China's
yuan revaluation starts another stage of US dollar demise worldwide
07/23/2005
17:19
Other Asian states will gradually reduce the purchase of American dollars
after the start of the yuan-revaluating process
China announced the start
of the process to revaluate the yuan the day before yesterday. Both international
financial organizations and central trade partners, the USA, EU and Japan, first
and foremost, were eagerly waiting for this news from the Chinese administration
for many years. American, European and Japanese financiers believed that the underestimated
rate of the Chinese national currency allowed China to artificially reduce production
costs and the costs of its export products. China's decision apparently became
a signal for other countries of South-East Asia to launch freer currency policies.
Malaysia followed China's example and announced about the extension of the corridor
for the national currency floating rate just an hour later.
It stands the
reason that China did not announce the unique revaluation of its national currency.
According to experts' estimates, the yuan is currently 40 percent more expensive
than the dollar. China dropped the national currency's peg against the US dollar.
Form now on, the cost of the Chinese currency will be based on correlations with
the cost of other world leading currencies: the US dollar, first and foremost,
as well as the euro, the yen and several others.
The decision, however,
resulted in the change of the yuan rate from 8.265 yuans per dollar to 8.11 yuans
per one American dollar. The US dollar rate subsequently suffered a considerable
reduction globally, while other world currencies improved their positions vs.
the USD.
Other Asian states will gradually reduce the purchase of American
dollars after the start of the yuan-revaluating process: there will be no need
for them to conduct interventions on currency markets to cheapen their own currencies.
The demand on the dollar will drop in the world; the same will happen with American
state bonds, in which central banks of Asian states invest billions of dollars.
If
other Asian countries support China and Malaysia, the dollar demise will continue
worldwide, analysts believe. It is noteworthy that the US economy will only benefit
from it, if it does not cause a sudden growth of the inflation rate in the States,
of course. Analysts are certain, though, that the yuan revaluation will be followed
with the decline of the US dollar rate on world markets.
As for China, even
the gradual revaluation of the national currency will be a serious blow on its
economy. The competitive ability of Chinese goods will inevitably slide on foreign
markets. In the event the Chinese national currency is revalued by 40 percent,
according to USA's expectations, the Chinese market will find itself defenseless
for import goods, whereas numerous small companies will be ruined in China. It
is worth mentioning that the level of unemployment is rather high in China (about
nine percept of the able-bodies citizens). The revaluation process may take years,
though, for Chinese financiers are perfectly aware of the risk and its price.
On the other hand, the Chinese currency has very good chances to become one of
the largest reserve currencies in the world and even make competition for both
dollar and euro.
As for Russia, the decision of Chinese authorities has
slightly increased the ruble rate against the dollar over the recent two days.
Nevertheless, Russia's Minister for Finances, Aleksey Kudrin, approved China's
decision to launch the revaluation process for its national currency. It is not
surprising at all: China is one of the largest trade partners of Russia. Russia
suffers from the ongoing inundation of cheap Chinese goods on the home market
because of the growing ruble. If the revaluation process continues in China, the
Russian ruble and Russian products will become more competitive at least on the
Russian market.
Read the original in Russian: (Translated by: Dmitry
Sudakov)
Pravda.Ru
