Friday 20 February 2009
RMB Rumour Briefly Roils Markets before Denials
China’s National Development and Reform Commission (NDRC) insisted on Feb. 18 that its officials had not speculated about RMB’s possible depreciation to 7 against the dollar, knowing that any rumour about RMB depreciation before US Secretary of State Clinton’s visit to China would put the cat among the pigeons.
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RMB Rumour Briefly Roils Markets before Denials
CSC staff, Shanghai
19 February 2009
China’s National Development and Reform Commission (NDRC) insisted on Feb. 18 that its officials had not speculated about RMB’s possible depreciation to 7 against the dollar, knowing that any rumour about RMB depreciation before US Secretary of State Clinton’s visit to China would put the cat among the pigeons.
On Feb. 17, China media quoted a message from China-Briefing.com that NDRC Deputy Director Zhang Xiaoqiang had said RMB was not facing any appreciation pressure and but instead might drop to 6.95-7 against USD, a fall of 1.6% to 2.3%. This triggered huge RMB exchange rate fluctuations that day on both domestic and overseas markets. The USD/RMB rate rose on Tuesday to 6.84, and then dropped back slightly to close at 6.8395. The previous closing price was 6.8340. Yesterday the Shanghai Composite Index slumped by nearly 3%. Market analysts guessed that investors were selling shares over worries of RMB depreciation prompting capital outflows.
NDRC said in its declaration that the message that “an NDRC official spoke of RMB maybe depreciating to 7” was an utterly false rumour, and that no NDRC senior official had been interviewed by any medium making any such comment.
The original message was from China-Briefing.com, a website under Dezan Shira Investment Consulting Co. China-Briefing.com soon corrected its message, saying this comment had been made by Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC).
After the release of NDRC’s declaration, China-Briefing.com apologized on its website, saying personal comments of Liu Mingkang and Zhang Xiaoqiang didn’t indicate the attitude of the government and then deleting the relevant part from Liu Mingkang’s interview.
“Both gentlemen acknowledged that the RMB position against the US dollar was currently felt to be at the correct level. However, in terms of a weakening Chinese economy and an anticipated rise in unemployment, the RMB may eventually reach a further ‘acceptable’ level against the US dollar. The RMB is also linked to a basket of currencies and not solely to the U.S. dollar. A comment made elsewhere stating that RMB would fall to 6.95/7.00 against the U.S. dollar cannot be attributed to either official,” China-Briefing.com said in its declaration.
“Both felt the current position of the RMB was correct, although some weakening might occur should the economy decline over time,” said Chris Devonshire Ellis, the author of the article, in answer to an e-mail from Chinastakes.com. As for why the company deleted the part about RMB from Liu Mingkang’s remarks, Ellis said they couldn’t attribute the comment to him. He didn’t respond, however, to whether it was the fault of their website.
It is still not clear when and where Ellis interviewed the two officials. And in China, neither NDRC nor CBRC are in charge of managing the RMB exchange rate.
Secretary Clinton is slated to visit China this week. Economic stimulation plans will be subjects of talks between the two parties. According to a Feb. 18 press release the statement from Deng Xianhong, deputy director of State Administration of Foreign Exchange, the government will work to prevent any large RMB fluctuation. And since the current formation mechanism well suits China, China will maintain RMB’s basic stability at a reasonable level as this is good not only for China but also the whole world, especially during the global financial crisis.
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