Bush’s Abomination’s #2 Failure: Economic Security
Edith M. Lederer, Economist: China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum.
At a standing-room only session focusing on the world's fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn't whether to devalue the yuan but "to limit it from the U.S. dollar."
But he stressed that the Chinese government is under no pressure to revalue its currency.
China's exchange rate policies restrict the value of the yuan to a narrow band around 8.28 yuan, pegged to $1. Critics argue that the yuan is undervalued, making China's exports cheaper overseas and giving its manufacturers an unfair advantage. Beijing has been under pressure from its trading partners, especially the United States, to relax controls on its currency.
"The U.S. dollar is no longer - in our opinion is no longer - (seen) as a stable currency, and is devaluating all the time, and that's putting troubles all the time," Fan said, speaking in English.
"So the real issue is how to change the regime from a U.S. dollar pegging ... to a more manageable ... reference ... say Euros, yen, dollars - those kind of more diversified systems," he said.
Chris Giles, Financial Times: Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit.
In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.
The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years.
Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004.
At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003…
http://www.tallahassee.com/mld/tallahassee/business/10740504.htm?template=contentModules/printstory.jsp
________________________________________
Posted on Wed, Jan. 26, 2005
Economist: China Loses Faith in Dollar
EDITH M. LEDERER
Associated Press
DAVOS, Switzerland - China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum.
At a standing-room only session focusing on the world's fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn't whether to devalue the yuan but "to limit it from the U.S. dollar."
But he stressed that the Chinese government is under no pressure to revalue its currency.
China's exchange rate policies restrict the value of the yuan to a narrow band around 8.28 yuan, pegged to $1. Critics argue that the yuan is undervalued, making China's exports cheaper overseas and giving its manufacturers an unfair advantage. Beijing has been under pressure from its trading partners, especially the United States, to relax controls on its currency.
"The U.S. dollar is no longer - in our opinion is no longer - (seen) as a stable currency, and is devaluating all the time, and that's putting troubles all the time," Fan said, speaking in English.
"So the real issue is how to change the regime from a U.S. dollar pegging ... to a more manageable ... reference ... say Euros, yen, dollars - those kind of more diversified systems," he said.
"If you do this, in the beginning you have some kind of initial shock," Fan said. "You have to deal with some devaluation pressures."
The dollar hit a new low in December against the euro and has been falling against other major currencies on concerns about the ever-growing U.S. trade and budget deficits.
The U.S. currency came under some pressure Wednesday, drifting lower versus most currencies including the Japanese yen and the euro, as dealers mulled the Chinese official's statements.
Fan said last year China lost a good opportunity to do revalue its currency, in July and October.
"High pressure, we don't do it. When the pressure's gone, we forgot," Fan said, to laughter from the audience. "But this time, I think Chinese authorities will not forget it. Now people understand the U.S. dollar will not stop devaluating."
Asked how speculation about revaluation could be curbed, he noted that China imposed a 3 percent tariff on Chinese exports.
Some Chinese experts say that perhaps inflation can be reduced this year, "but I'm not that optimistic," Fan said, noting that fuel prices keep rising.
"So maybe China (will) have 4-5 percent inflation in 2005," he said.
Fan, whose nonprofit institute specializes in analyzing the Chinese economy, stressed that the country's development is a long-term process that will take decades, maybe a century.
Since China's economic modernization began over a decade ago, 120 million rural laborers have moved into cities, but another 200 million or 300 million people need to move into the cities from the countryside to spur development, he said.
"The income disparity is huge, and income disparity will stay with us for a long time, as long as those 200 to 300 million rural laborers stay in the countryside," Fan said.
Nonetheless, William Parrett, chief executive of Deloitte Touche Tohmatsu, told the panel that Chinese companies are making significant progress in becoming global giants, led by state-owned companies.
"It's probably at least 10 years before the objective of the government of 50 of the largest 500 companies in the world being Chinese" is achieved, he said.
________________________________________
© 2005 AP Wire and wire service sources. All Rights Reserved.
http://www.tallahassee.com
http://www.iht.com/articles/2005/01/25/business/trade.html
Central banks shift reserves away from US
By Chris Giles
Published: January 24 2005 00:03 | Last updated: January 24 2005 00:03
Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit.
In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.
The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years.
Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004.
At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003.
Any reluctance to increase exposure to dollar assets further could cause the greenback to plunge on currency markets.
"The US cannot take support for the dollar for granted," said Nick Carver, one of the authors of the study conducted by Central Banking Publications, a company that specialises in reporting on central banks.
"Central banks' enthusiasm for the dollar seem to be cooling off."
In a further worrying sign for the greenback, 47 per cent of reserve managers surveyed said they expected the growth of official reserves to slow to less than 20 per cent over the next four years. Between the end of 2000 and mid-2004, official reserves had increased by 66 per cent.
Slower reserve accumulation growth implies the supply of official finance is likely to become more limited but few expect the demand from the US for finance to slow. The consensus among economists is that the US current account deficit will increase to $694bn in 2005.
More than 90 per cent of central bank reserve managers said that the income from reserve management was "important" or "very important".
In the two years since a similar survey was conducted, reserve managers had begun to seek higher returns for the money under management.
For these managers, dollar assets have become less attractive because the fall in the dollar since 2002 has reduced the yield they received and, in some cases, has led to negative real returns.
Alan Greenspan, the chairman of the Federal Reserve, warned in November that there was a limit to the willingness of foreign governments to finance the US current account deficit.
The survey was conducted on the guarantee of anonymity for the banks involved. The 65 central banks that participated control 45 per cent of global official reserves. Individually, they had up to $250bn under management.
Find this article at:
http://news.ft.com/cms/s/9ef63678-6d7d-11d9-9b69-00000e2511c8,ft_acl=,s01=1.html