ID :
208843
Thu, 09/22/2011 - 13:36
Auther :
Shortlink :
https://oananews.org//node/208843
The shortlink copeid
China's controlled monetary system becoming costly
By Kim Young-gyo
HONG KONG (Yonhap) - China's controlled monetary system is becoming more costly, making it inevitable for the country to pursue the internationalization of its currency, a market expert said Thursday.
The world's No. 2 economy currently does not have full capital account convertibility and maintains regulatory control that limits the trading of its currency at market rates. Such measures have resulted in the lack of the currency's liquidity, the most important quality necessary for a currency to be recognized as a medium of exchange around the world.
Moody's Analytics, a division of Moody's Corporation, said China's currency rules have served the country well in the past, but drawbacks are on the rise.
"The country's trade patterns and capital controls have caused foreign reserves to pile up, reaching US$3.2 trillion at the end of June. Since the yuan is expected to rise versus the U.S. dollar, China is set to take a sizable loss on its dollar holdings," said Alaistair Chan, economist at Moody's Analytics.
Moreover, since the 2008 global financial crisis, the securities in the portfolio of the People's Bank of China (PBOC) -- mostly composed of U.S. Treasuries -- have smaller returns compared to the securities the PBOC issues, causing a further loss on its sterilized currency interventions, Chan explained. In 2010, the PBOC had a loss of around $40 billion in its reserves.
The expert for the market assessment firm, in addition, said a fully convertible currency would make China's economy more resilient to external shocks in the long run, since the yuan's value could help absorb sudden changes at home and abroad.
The more liberal yuan would also give the PBOC greater flexibility in setting monetary policy, he said.
HONG KONG (Yonhap) - China's controlled monetary system is becoming more costly, making it inevitable for the country to pursue the internationalization of its currency, a market expert said Thursday.
The world's No. 2 economy currently does not have full capital account convertibility and maintains regulatory control that limits the trading of its currency at market rates. Such measures have resulted in the lack of the currency's liquidity, the most important quality necessary for a currency to be recognized as a medium of exchange around the world.
Moody's Analytics, a division of Moody's Corporation, said China's currency rules have served the country well in the past, but drawbacks are on the rise.
"The country's trade patterns and capital controls have caused foreign reserves to pile up, reaching US$3.2 trillion at the end of June. Since the yuan is expected to rise versus the U.S. dollar, China is set to take a sizable loss on its dollar holdings," said Alaistair Chan, economist at Moody's Analytics.
Moreover, since the 2008 global financial crisis, the securities in the portfolio of the People's Bank of China (PBOC) -- mostly composed of U.S. Treasuries -- have smaller returns compared to the securities the PBOC issues, causing a further loss on its sterilized currency interventions, Chan explained. In 2010, the PBOC had a loss of around $40 billion in its reserves.
The expert for the market assessment firm, in addition, said a fully convertible currency would make China's economy more resilient to external shocks in the long run, since the yuan's value could help absorb sudden changes at home and abroad.
The more liberal yuan would also give the PBOC greater flexibility in setting monetary policy, he said.
