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Looser Chinese Currency Controls
 

Looser Chinese Currency Controls

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http://www.theforexnittygritty.com/forex/looser-chinese-currency-controls

Looser Chinese Currency Controls

The announcement of looser Chinese currency controls has been met with mixed reviews. The US government, the Europeans, and many others, would be pleased to see a much stronger Yuan. The thinking goes that a stronger Chinese currency makes it easier to profitably export to China. At a time when the USA is slowly emerging from the recession and Europe is back in the red for a year, anything that creates jobs will be welcome.

To a degree looser Chinese currency controls are a surprise as China has studiously kept its currency on the weak side by purchasing foreign currencies, especially the dollar, with its impressive export profits. This is the game plan followed for years by Japan, Taiwan, and others. Keep you currency weak so that you products are cheap and attractive in the two large and rich markets of the world, North America and Europe.

The problem for China is that the other nations of the world are dealing with more or less battered economies across the board and have ceased to be amused by the monetary policy of the world’s fastest growing export economy. However, barring an early Euro Zone debt resolution, China will, itself, see slower growth in the coming years.

How Is This Going to Work?

First of all, what Chinese authorities did was allow the Yuan to float one percent up or down in the Yuan – USD exchange rate during a trading day. The limit was half a percent. This float is up or down from a benchmark rate that the Central Bank of China sets every day. Although the Yuan is able to float throughout a larger range, the range is effectively set by daily Chinese monetary policy. If you wish to trade a declining Yuan based on reduced exports or a rising Yuan based on global recovery, remember that the range is still set by Chinese monetary policy and not the market. This can be a problem for long term traders. However, the new policy of looser Chinese currency controls provides traders with a wider range in which to trade and, hopefully, a little better chance of making profits.

What Are the Issues Regarding Looser Chinese Currency Controls?

The Yuan has appreciated by more than four percent a year for the last half decade. The Chinese government has been under increasing pressure from North America, Europe, and elsewhere to let it currency float, without restraints. The belief of many, outside of China, is that a free floating Yuan will become much more expensive making Chinese goods more expensive and goods from North America and Europe more competitive. However, China recently had its first trade deficit in more than a decade. There is the prospect of a Chinese real estate crash and less demand for Chinese goods due to recession in Europe. Thus it is not absolutely clear whether looser Chinese currency controls will result in a free floating Yuan that will simply continue to go up or if it may even le

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    Looser Chinese Currency Controls Looser Chinese Currency Controls Presentation Transcript

    • Looser Chinese Currency ControlsBy www.TheForexNittyGritty.com
    • To see a complete version of thispresentation and to obtain our free EBookfollow this link:http://portal.sliderocket.com/BLOUC/Looser_Chinese_Currency_Controls2Read the Forex Conspiracy Report forinsights into trading foreign currencies.Get your copy athttp://portal.sliderocket.com/BLOUC/Looser_Chinese_Currency_Controls2
    • The announcement of looser Chinesecurrency controls has been met with mixedreviews. www.TheForexNittyGritty.com
    • The US government, the Europeans, andmany others, would be pleased to see amuch stronger Yuan. www.TheForexNittyGritty.com
    • The thinking goes that a stronger Chinesecurrency makes it easier to profitably export toChina. www.TheForexNittyGritty.com
    • At a time when the USA is slowly emergingfrom the recession and Europe is back in thered for a year, anything that creates jobs willbe welcome. www.TheForexNittyGritty.com
    • To a degree looser Chinese currency controlsare a surprise as China has studiously kept itscurrency on the weak side by purchasingforeign currencies, especially the dollar, withits impressive export profits. www.TheForexNittyGritty.com
    • This is the game plan followed for years byJapan, Taiwan, and others. Keep you currencyweak so that you products are cheap andattractive in the two large and rich markets ofthe world, North America and Europe. www.TheForexNittyGritty.com
    • The problem for China is that the other nationsof the world are dealing with more or lessbattered economies across the board and haveceased to be amused by the monetary policy ofthe world’s fastest growing export economy. www.TheForexNittyGritty.com
    • However, barring an early Euro Zone debtresolution, China will, itself, see slower growthin the coming years. www.TheForexNittyGritty.com
    • How Is This Going to Work? www.TheForexNittyGritty.com
    • First of all, what Chinese authorities did wasallow the Yuan to float one percent up or downin the Yuan – USD exchange rate during atrading day. www.TheForexNittyGritty.com
    • The limit was half a percent.This float is up or down from a benchmark ratethat the Central Bank of China sets every day. www.TheForexNittyGritty.com
    • Although the Yuan is able to float throughout alarger range, the range is effectively set by dailyChinese monetary policy. www.TheForexNittyGritty.com
    • If you wish to trade a declining Yuan based onreduced exports or a rising Yuan based on globalrecovery, remember that the range is still set byChinese monetary policy and not the market.This can be a problem for long term traders. www.TheForexNittyGritty.com
    • However, the new policy of looser Chinesecurrency controls provides traders with awider range in which to trade and, hopefully, alittle better chance of making profits. www.TheForexNittyGritty.com
    • What Are the Issues Regarding Looser Chinese Currency Controls? www.TheForexNittyGritty.com
    • The Yuan has appreciated by more than fourpercent a year for the last half decade.The Chinese government has been underincreasing pressure from North America,Europe, and elsewhere to let it currency float,without restraints. www.TheForexNittyGritty.com
    • The belief of many, outside of China, is that afree floating Yuan will become much moreexpensive making Chinese goods moreexpensive and goods from North America andEurope more competitive. www.TheForexNittyGritty.com
    • However, China recently had its first trade deficitin more than a decade.There is the prospect of a Chinese real estatecrash and less demand for Chinese goods dueto recession in Europe. www.TheForexNittyGritty.com
    • Thus it is not absolutely clear whether looserChinese currency controls will result in a freefloating Yuan that will simply continue to go upor if it may even level off or go down. www.TheForexNittyGritty.com
    • As China loosens its currency controls it may beeasier to see which direction the market reallywants to take the Yuan. www.TheForexNittyGritty.com
    • In the long run China would like to see theYuan become one of the world’s reservecurrencies. www.TheForexNittyGritty.com
    • To get there they need to bite the bullet, engagemore thoroughly with other trading nations, andlet the Yuan find its own level. www.TheForexNittyGritty.com
    • For more insights and usefulinformation regarding the Forexmarkets and foreign currency trading,visit
    • www.TheForexNittyGritty.com