A basket of the dollar, euro and yen likely forms the backbone of China's new currency regime, but its composition and weighting will likely remain secret as the central bank seeks to outwit speculators, analysts say.
China's decision to revalue the yuan on Thursday, largely seen as a token gesture to appease international criticism that it was undervalued, was a carefully calculated move meant to protect its still developing economy, they said.
By abolishing the decade-old peg to the dollar in favor of an unknown currency-basket system, Beijing aims to protect its still rickety financial system against the forces of international speculation.
PHOTO: AP
"Definitely it will not be announced because then it would be too easy for speculators to calculate [the weightings,]" said Yi Xianrong, economist at the Chinese Academy of Social Sciences.
Speculation is a powerful force in today's integrated world economy and sudden, sharp attacks on countries' unit can bring governments to their knees, as happened during the 1997 Asian financial crisis.
"What they want to avoid is a hard target for speculators to attack," said Todd Lee, managing director at research firm Global Insight.
Analysts said the euro, yen and dollar should make up the bulk of China's new basket of currencies, with the units of smaller Asian trading partners such as the Singapore dollar possibly also included.
The main trading band, which allows the yuan to move 0.3 percent either side of a fixed mid-point, has been left unchanged, which theoretically means the currency could move by that maximum on a daily basis fairly quickly to what the market deems fair value.
"The People's Bank of China will make adjustment of the exchange rate band when necessary according to market development as well as the economic and financial situation," the central bank said in its announcement on Thursday.
Yesterday it said the yuan would be allowed to trade up or down 1.5 percent on either side of a mid-point against non-US dollar currencies in the interbank market.
Many analysts believe that the yuan, set on Thursday at a starting point of 8.11 yuan compared to the previous rate of 8.28, an effective revaluation of some 2 percent, still remains significantly undervalued.
But the main question now is whether China would make use of the newfound flexibility to let the yuan drift gradually higher.
Because Asian trade uses the dollar to record upwards of 65 percent of financial transactions, the currency basket is likely strongly skewed toward the US unit, said Huang Yiping (黃益平), China economist at Citigroup.
Morgan Stanley economist Andy Xie (謝國忠) added that China could afford to allow the yuan more flexibility to move against non-US currencies, given they will make up a far smaller share of the basket.
Xie said, however, that the trading range for both the dollar and non-dollar currencies remain too narrow to cope with major foreign exchange rate fluctuations.
"If the US dollar moved 10 percent, obviously the 3 percent [trading range for non-US currencies] would be insufficient," he said.
"That may create a dilemma for the renminbi [yuan]-euro exchange rate. This is a problem that is not solved yet," Xie said.
As it stands, the change still signals a fundamental shift in China's economic policy but the new system also poses inherent risk for Chinese corporations, said Wang Zhao, an economist at the National Development and Research Center of the State Council, the country's Cabinet.
"If China never announces the basket structure it would only make things less transparent and it will bring trouble to its trading companies because it is just as difficult for them to calculate currency risk and cost," Wang said.
The nation’s fastest supercomputer, Nano 4 (晶創26), is scheduled to be launched in the third quarter, and would be used to train large language models in finance and national defense sectors, the National Center for High-Performance Computing (NCHC) said. The supercomputer, which would operate at about 86.05 petaflops, is being tested at a new cloud computing center in the Southern Taiwan Science Park in Tainan. The exterior of the server cabinet features chip circuitry patterns overlaid with a map of Taiwan, highlighting the nation’s central position in the semiconductor industry. The center also houses Taiwania 2, Taiwania 3, Forerunner 1 and
Japan has deployed long-range missiles in a southwestern region near China, the Japanese defense minister said yesterday, at a time when ties with Beijing are at their lowest in recent years. The missiles were installed in Kumamoto in the southern region of Kyushu, as Japan is attempting to shore up its military capacity as China steps up naval activity in the East China Sea. “Standoff defense capabilities enable us to counter the threat of enemy forces attempting to invade our country ... while ensuring the safety of our personnel,” Japanese Minister of Defense Shinjiro Koizumi said. “This is an extremely important initiative for
MORE POPULAR: Taiwan Pass sales increased by 59 percent during the first quarter compared with the same period last year, the Tourism Administration said The Tourism Administration yesterday said that it has streamlined the Taiwan Pass, with two versions available for purchase beginning today. The tourism agency has made the pass available to international tourists since 2024, allowing them to access the high-speed rail, Taiwan Railway Corp services, four MRT systems and four Taiwan Tourist Shuttles. Previously, five types of Taiwan Pass were available, but some tourists have said that the offerings were too complicated. The agency said only two types of Taiwan Pass would be available, starting from a three-day pass with the high-speed rail and a three-day pass with Taiwan Railway Corp. The former costs NT$2,800
FIRST TRIAL: Ko’s lawyers sought reduced bail and other concessions, as did other defendants, but the bail judge denied their requests, citing the severity of the sentences Former Taipei mayor Ko Wen-je (柯文哲) was yesterday sentenced to 17 years in prison and had his civil rights suspended for six years over corruption, embezzlement and other charges. Taipei prosecutors in December last year asked the Taipei District Court for a combined 28-year, six-month sentence for the four cases against Ko, who founded the Taiwan People’s Party (TPP). The cases were linked to the Core Pacific City (京華城購物中心) redevelopment project and the mismanagement of political donations. Other defendants convicted on separate charges included Chinese Nationalist Party (KMT) Taipei City Councilor Angela Ying (應曉薇), who was handed a 15-year, six-month sentence; Core Pacific
RSS