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Get Four
|  | JULY 21, 2005
By Peter Coy Yearning for Yuan ClaritySome fret about China's Greenspan-like vagueness about how it will manage the currency. But other vague systems have workedLaughs Carl Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y.: "We don't know what they're doing. We don't know why they're doing it. And we don't know how they're doing it. Otherwise it's perfectly clear." HAVING IT BOTH WAYS. China says it will "manage" its currency by allowing its value to float up and down within limits. It will measure the yuan's value against a basket of other nations' currencies, instead of just one, such as the U.S. dollar. But Beijing is leaving itself plenty of room. China didn't announce the currencies in the market basket, or how much weight each would carry. That's a vital factor. Also, China says each day it will choose one currency from the basket to be the reference currency -- but it apparently won't say which one. So will China keep the yuan -- aka the renminbi (RMB) -- basically stable? Or will it allow the currency to appreciate until it reaches equilibrium? The government gives no clue in a sentence that tries to have it both ways: "The People's Bank of China is responsible for maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level." MURKINESS MAY WORK. While High Frequency's Weinberg worries that the uncertainty will bedevil the currency markets and complicate life for exporters and importers, others are less concerned. Citigroup Chief Economist Lewis Alexander notes that Singapore has a similarly vague system. It doesn't reveal the currencies in the market basket that it pegs to, or how wide the trading band is. Yet trading in the Singaporean currency is active and liquid. So China's Greenspanian vagueness may serve its purposes fine.  Coy is BusinessWeek's Economics editor in New York Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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