RMB: Still Rising

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While China’s population may be over a billion, its foreign reserves are already around US$1 trillion. Forbes notes that this figure could rise to US$1.5 trillion by 2008, and US$2 trillion by the end of 2010.

All these reserves add to the pressure for an appreciation of the currency (which passed the “lucky 8” figure in May) , and a Bloomberg report notes that:

    “A statement released on Friday by the central bank’s state administration of foreign exchange said the nation needed to improve management of the cash pile…The yuan strengthened 0.1% to 7.9025 against the dollar as on 5:30 p.m. in Shanghai, erasing this week’s losses and bringing gains to 2.6% since China dropped its fixed exchange-rate regime in July 2005, according to the China Foreign Exchange Trade System”.

Where will the RMB go from here? The Bloomberg report provides two estimates:

    • Deutsche [Bank] forecasts it “will rise to 7.70 in six months”.

    • Citigroup estimates that it will “advance to 7.76 by year-end, and by another 6.3% next year”.

We will see.

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