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The situation of China (excluding HK) is a little unique. Their currency
has never really been freely traded, and has therefore always been
controlled by the government. Chinese individuals and corporations have
been converting their money into dollars on the black market out of fear a
devaluation was coming, but the government has been cracking down on this
quite extensively. This contrasts to Brazil, where converting Reals into
dollars is legal (but frowned upon...). The fact that the government
controls the currency trade and has very large foreign reserves pretty much
ensures a devaluation will not occur unless the leadership decides they want
it to.
The reason China is under pressure to devalue is that they rely heavily on
exports for economic growth (like the rest of Asia). The fact that
virtually every other country in Asia has seen their currency plummet in
value now makes Chinese products less competitive in terms of price on the
international market. Whether a devaluation would really help China is up
for grabs. The history of devaluations is almost all bad, but China is a
unique situation and may not fit the mold.
It would definitely be seen as a bad sign for other Asian markets, and it
would probably be a short term blow to first-world market psychology, which
seemed to have counted on the worst of Asia being over.
Bruce
-----Original Message-----
From: Alan Myers <a.myers@xxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Thursday, January 21, 1999 9:55 AM
Subject: Re: Devaluation question
>One thing that I don't understand is why such a move by China (devaluation)
>seems to be so feared. How much worse can it get for S.E. Asia?
>
>~Alan
>
>-----Original Message-----
>From: TheGonch <Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx>
>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>Date: Thursday, January 21, 1999 8:23 AM
>Subject: Re: Devaluation question
>
>
>>The HK$ is pegged to the US$. The reminbi (sp?) is not convertible but
>>is effectively maintained by the Chinese govt, and there has been talk
>>of the Chinese 'floating' its currency by refusing to support current
>>levels, which is most similar to the Brasilian situation, where they
>>were not strictly pegged, but attempted to manage the deterioration of
>>the exchange rate over time.
>>
>>DanG
>>
>>Andrew wrote:
>>>
>>> At 05:12 PM 1/21/99 , you wrote:
>>>
>>> You mean HK dollar.
>>>
>>> >China gets the focus now as the biggest economy pegging its rate.
>
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