WEST PALM BEACH, FL (www.hedgeco.net) – Li Deshui, a member of the Chinese central bank’s monetary committee, said that China will take a go slow approach for the convertibility of the yuan, suchapproach was necessitated by worries of the Chinese government officials that hedge funds may attach their currency. Deshui disclosed that the Chinese authorities will not complete the convertibilityof the yuan for at least 5 years, because of the possibility that hedge funds may attack the currency just as they did to won and baht during the Asian financial crisis of the late 1990�s.
A similar decision by Thailand nearly a decade ago led to the development of the Asian financial crisis, and China is bent on not allowing such a thing to happen again. Because of the artificial peg of the yuan to the dollar, the Chinese currency also called the renminbi, which stands for �the people�s money� managed to retain its value intact during the Asian financial crisis.
Li said in an interview, “There’s more than $800 billion to $1 trillion of hedge funds in the world and the Chinese financial system is relatively weak.” Li worries that if the yuan became fully convertible sooner, “it would be attacked by these hedge funds.”
In a surprise move last week, the Chinese authorities took the financial world by surprise when it ended the decade long artificial peg of their currency to the U.S. dollar. U.S. officials welcomed such move; however some currency strategists and economists criticize the Chinese action of not going far enough. By pegging the yuan to the dollar, economists believe China derived an unfair trade advantage over its competitors through the low prices of Chinese manufactured goods in the international markets.
Li also said, �The decision not to allow the yuan to become fully tradable soon was necessitated by considerations of the state of the country�s banking system.� He added, “Over the next five years, I do not foresee the renminbi becoming fully convertible, our banks are not good enough and the monetary system is not quite up to international standards.�
Paul Oranika
Editor-in-Chief
HedgeCo.Net
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