Asia embraces new landscape after China's currency move
Asia embraces new landscape after China's currency move
Karl Malakunas, Agence France-Presse/Singapore
Asia embraced a new financial landscape on Friday after China finally abandoned its decade-old peg to the dollar, with regional governments and analysts widely applauding Beijing for the move.
Asian currencies were uniformly tipped to appreciate in the long-term following China's announcement on Thursday that it had abandoned the yuan peg for a managed float against an undisclosed trade-weighted basket of currencies.
The region's economic growth rates were also expected to get a boost, according to analysts who further predicted China's move would inevitably be the start of a long process of the yuan regime becoming more flexible.
The most immediate impact came in Malaysia, which announced virtually straight after China Thursday that it had scrapped the ringgit's seven-year-old peg to the dollar in favor of a managed float.
"Do not underestimate the significance of a new currency policy for China," JPMorgan equities strategist Adrian Mowat said.
"An appreciating renminbi would accelerate the current trend of appreciating Asian currencies while boosting the region's reflating economies.
"Strong currencies should attract capital and discourage the export of savings, adding to demand for Asian assets."
The yuan, or renminbi, was revalued at 8.11 to the U.S. dollar compared to 8.28, a 2.1 percent revaluation.
It will be allowed to trade 0.3 percent either side of a daily fixed rate and trade in a managed float against a basket of trade-weighted currencies.
The move came after sustained pressure from the United States and other Western nations worried about China's perceived trading advantage with an artificially weak currency unfairly boosting the nation's exports.
Japan, the largest economy in Asia and China's biggest trading partner, was one of the first to urge still greater yuan flexibility, while welcoming the first step.
"A shift to a basket-trading system of the Chinese yuan is positive for the Chinese and global economies," Minister for Economic and Fiscal Policy Heizo Takenaka told a press conference.
"While the movement of the Chinese yuan is expected to be limited in the near-term after the introduction of the new trading system, it will affect corporate as well as the export activity of Japan in the mid- to long-term."
Japan's Chief Cabinet Secretary, Hiroyuki Hosoda, said Tokyo "would welcome it if the yuan becomes more flexible" and Takenaka expressed similar sentiments.
"We will be watching closely whether the Chinese monetary authorities manage the currency trading system more flexibly and in a more market-driven fashion in the long-term," Takenaka said.
Economists were in no doubt China will loosen the peg further -- the question only being when.
"(China) will eventually have to allow bigger movement flexibility for the exchange rate to reflect changes in the underlying currency basket," DBS greater China analyst Chris Leung said.
"I believe the next step will be the adoption of a wider trading band."
Other governments around the region welcomed China's revaluation, although they also emphasized that the 2.1-percent appreciation in itself would not have a major initial impact.
"I think it's a positive development because greater flexibility allows the adjustments across economies to be made through a more flexible pricing structure," the managing director of Singapore's central bank, Heng Swee Keat, said.
"In the long-term within Asia, it gives us a better buffer to absorb any sort of external shocks so those are positive developments for Asian economies and the world economy."
Australian Trade Minister and acting Prime Minister Mark Vaile said China's decision was "good for Australia's exports and international markets.
"China is Australia's second largest export market and the revaluation of the renminbi will make Australian exports cheaper, having a positive impact especially on resources and agriculture products," Vaile said.
In Malaysia, the business community said the yuan-triggered revaluation of the ringgit was an important step in making the Southeast Asian nation a more attractive destination for investors while helping the local economic liberalization process.