Currency stabilised following wild trade
THE market value of the Chinese currency, the renminbi, appears to have stabilised after frenetic trading pushed it down to about 10.2 yuan to the US dollar two weeks ago.
The swap market rate in Beijing is currently around 8.3 yuan to the dollar and most analysts expect it to remain at that level, or strengthen slightly against the dollar, in the next few weeks.
The official exchange rate is still only 5.78 yuan to the dollar.
Analysts say the great renminbi sell-off, which started in late December, was triggered by rumours that the government was about to significantly devalue the currency and by a massive increase in the demand for dollars in the run-up to the Chinese New Year.
''There is always a tremendous buying spree right before the New Year, and that certainly contributed to the demand for dollars,'' a Western banker in Shanghai, one of China's main currency trading centres, said yesterday.
Now that the New Year has passed and the government has issued a very forceful statement denying any intention of drastically devaluing the currency, analysts say the market has calmed down considerably.
''I suspect the worst is over now,'' the head of a trading company in Beijing said. ''A lot of the speculators are starting to realise that the devaluation rumours were probably false. As such the market should be a lot more tranquil in the next few weeks.'' Both government economists and Western businessmen tend to agree that the fall in the value of the renminbi this year was caused by seasonal factors and speculation, rather than by any fundamental economic forces.
Government currency specialists attending a national conference in Beijing last week argued that the market rate did not reflect the true value of the renminbi.
The official rate, generally considered by Western economists to over-estimate the renminbi's value, was probably more in line with China's actual economic conditions than the market rate.
They said the government should also take stronger measures to crack down on speculators.
Unless the government took action to prevent further falls in the value of the renminbi, the cost of agricultural and industrial production would increase and economic returns would be reduced, adversely affecting overall economic growth.