- BEIJING - In Chinese street
slang, they are known as the "yellow bulls" -- the underground
traders who lurk outside the banks in aggressive pursuit of currency deals.
But despite their business zeal, there is one commodity they are unwilling
to buy on the street these days: U.S. dollars.
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- "Everyone is converting their dollars to Chinese
yuan," one black-market trader confided as he stood outside a bank
in Beijing yesterday.
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- "Our business is getting more and more difficult,"
he said. "It's hard to find anyone buying U.S. dollars any more. The
value of the yuan is definitely going to increase."
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- These are anxious days for China's legions of canny traders
and savers. Not long ago, they had faith in the American dollar as the
safest of safe havens -- a guaranteed stable investment. For years, China
had survived financial crises by pegging its currency to the U.S. dollar.
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- But the prolonged slump in the dollar, along with hints
of an approaching revaluation of the yuan, has created a new phenomenon
here: the shunning of the greenback.
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- "Nobody with a U.S.-dollar account can sit quietly
at home any longer," said one man in a queue at a Bank of China branch
yesterday. "The black market is a sign of the market trends. The government
might say that it won't change the official exchange rate today, but tomorrow
it could announce a change."
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- For the past decade, China has held the yuan to a fixed
value of about 8.3 to the U.S. dollar. In the past, the black-market traders
were often willing to pay up to nine yuan for a dollar. But today the unofficial
rate on the street is only 8.22 yuan to the dollar -- if you can find anyone
willing to buy dollars.
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- Many Chinese investors are nervously wondering whether
they should get rid of their dollars. "I'm worrying about it,"
said Li Dan, a 28-year-old information technology manager in Beijing.
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- "I've got $60,000 [U.S.] accumulated from shares
in my company. What should I do? Who can tell if the exchange rate will
decline? If I don't convert my money to yuan, I could lose thousands of
dollars. That's a lot of money."
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- Many have already dumped their dollars. By the end of
October, the switch from dollars to yuan had contributed to a 3.8-per-cent
drop in foreign-currency savings by Chinese households, compared with a
year earlier. This amounted to a decline of $1.7-billion in household foreign-exchange
savings this year alone. At the Shanghai branch of the Bank of China, meanwhile,
the conversion of dollar accounts to yuan accounts increased by 17 per
cent in September and 34 per cent last month.
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- The dollar has lost the aura of stability that it once
enjoyed here. And with the Chinese economy booming, a growing number of
Chinese investors are regarding the yuan as the new hard currency. On the
pages of a Hong Kong newspaper this month, the trend was illustrated by
a picture of a man setting fire to an American dollar bill on Tiananmen
Square, with the caption: "Money to burn."
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- Many Chinese are betting that the dollar will continue
to decline and the yuan will be revalued. In the non-deliverable forward
market in Hong Kong, the current level of forward contracts suggests that
the yuan would rise to a level of 7.887 to the dollar within 12 months
if it were freely traded.
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- The Chinese media and bank officials have sent out a
growing number of signals that the yuan could be revalued in the next few
months. The central bank has talked of possible "flexibility"
in the value of the yuan. Some reports predict a widening of the trading
band in the first quarter of next year.
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- "The decline of the U.S. dollar... may be the final
factor convincing Beijing to revalue the currency," concluded a report
this month by the Eurasia Group, a New York-based firm of political analysts.
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- "A modest currency revaluation increasingly appears
to be Beijing's next step in cooling its economy."
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- The deputy governor of China's central bank, Li Ruogu,
confirmed this week that China is gradually moving toward greater flexibility
in its dollar exchange rate, although he emphasized that it would not happen
as long as Western leaders continue to apply heavy pressure on China to
revalue its currency.
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- "Everybody is saying that the value of the yuan
will increase," a Beijing bank customer said yesterday.
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- "Even though the central bank says it will happen,
I think it is just a matter of sooner or later."
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- Rising currency giant
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- With the Chinese economy booming and the U.S. dollar
wavering, Chinese investors are dumping their greenbacks, convinced the
yuan is becoming the new hard currency.
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- The people's currency
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- The name
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- Chinese money is called Renminbi, which means People's
Currency.
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- The issuer
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- The People's Bank of China. The popular unit is the yuan.
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- Bank of China Governor
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- Dai Xianglong
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- Exchange rate
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- The yuan's exchange rate has been pegged to the greenback
for a decade, and one U.S. dollar equals about 8.3 yuan.
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- Denominations
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- 0.10, 0.20, 0.50, 1, 2, 5, 10, 50, and 100 Yuan. Smaller
values are issued as coins, with 1 yuan = 10 jiao = 100 fen.
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- History
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- 1023
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- The Chinese are the first to use paper currency, issued
during the S'ung dynasty.
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- 1948
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- People's Bank of China was established Dec. 1, and was
the first sector to be socialized by Chairman Mao's new republic.
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- 1966-1876
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- Bank stripped of many of its functions during the Cultural
Revolution, but it regained responsibility for issuing and controlling
currency.
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- 1983
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- Bank assumes responsibilities of a central bank, a status
not legally confirmed until 1995. It is modelled after U.S. Federal Reserve
system, with monetary policy managed by various local offices.
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- 1998-99
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- In the wake of the Asian currency crisis, Bank is under
pressure to devalue Renminbi. Replaces quota management of credit with
assets-to-liabilities ratio management.
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- Dumping the dollar
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- The Chinese are living up at banks to sell U.S. dollars
for yuan. China's foreign reserves are climbing as the central bank buys
those dollars to keep the exchange rate steady.
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- SOURCE: THE WALL STREET JOURNAL
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