08/07/2008, 00.00
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Tighter controls introduced to prevent speculation on the yuan

Authorities given wider powers to investigate and certify currency payments. Experts: this will stem the rise in the yuan against other currencies. The problem for emerging economies, like India, of blocking purely speculative operations, which increase inflation without fostering growth.

Beijing (AsiaNews/Agencies) - The yuan has lost ground against the dollar for the third day in a row, after China yesterday approved new rules to control capital flows and block speculative bets on its currency. Regulators now have wider powers to investigate currency payments, while fines of 30% will be applied to unauthorized transfers of foreign currency.

The State Administration of Foreign Exchange explains that "as China's economy becomes more internationalized and the movement of international capital flows accelerates, there is a need to improve the system and oversight of multinational capital movements". Of greatest concern are the strictly superficial transfers made for speculative reasons, which can spur inflation, as well as the introduction of unauthorized foreign capital into the country. These speculative maneuvers have been made attractive by the strong, constant rise of the yuan against the U.S. dollar. Although official data are not available, the state news agency Xinhua says purely speculative operations amounted to 147.9 billion dollars from January to May of 2008. In July, the value of the yuan against the dollar remained almost unchanged, but in the previous quarter it gained about 2.3%.

Analysts observe that this greater control will cause "reduced demand to exchange dollars for yuan, and will slow the appreciation of the Chinese currency".

The problem of speculative capital flows is a common one for the large emerging economies, because their currencies are rising rapidly as a consequence of their strong and constant economic growth. The Indian rupee has risen significantly in recent days, buoyed by optimism over Mumbai's stock market gains and a fall in oil prices. New capital flows are expected, together with a further rise over the short term. But these countries must present speculative operations from causing inflation without bringing any real growth: this is an even more serious situation in a country like India, which imports about 70% of its energy needs and expects to import 8 billion dollars worth of oil in 2008, compared to 5.5 billion in 2007.

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