Chinese Currency

[pearltime]

I saw a small news spot today about changes in the value of Chinese currency versus the dollar. I can't find the story. Has anyone else heard anything?

[Zeide Erskine]

Hi Karen,

The Yüan decoupled from the US dollar some months ago. For years, the Chinese currency was pegged to the dollar but recently that has proven cumbersome for the Chinese economy.

Zeide

[jshepherd]

It was more cumbersome for the world's economy, not China's - it actually played a large part in the historic surge of the Chinese economy.

Renmembi (the Yuan) was pegged at 8.28 to to the dollar since 1998. With an economy surging and the value of the dollar decreasing against nearly all other world currency, the Yuan was seriously undervalued.

They finally revalued the Yuan a year ago this month.

What you probably heard about today is that the Yuan climbed today, pushing the US dollar below 8 for the first time since the revaluation. It is not going to make a huge difference in pearl prices, as US cash price has been more or less set at 8, and it only went down to 7.997. What is newsworthy is that the dollar finally fell below 8.

[Meech]

Hi pearltime,

Here are two links regarding the revaluation of the Yuan. It happened about a year ago (July 2005). These articles are from China Daily (March and May, respectively).

Enjoy!

http://www.chinadaily.com.cn/english/doc/2006-03/19/content_545875.htm

http://www.chinadaily.com.cn/china/2006-05/16/content_591025.htm

Meech

[pearltime]

I caught the tail end of the story on CNBC. I don't know. Perhaps you are both right.

Karen

[Zeide Erskine]

Hi Jeremy,

The problems for the Chinese economy mostly arose from overpaying on oil and other raw material imports by paying for it with an undervalued currency. Most of its export activity was already based on adjusted real exchange rates as you mentioned in your RMB 8.00 per USD rate in pearl contracts. So, the Chinese economy stands to gain a lot from the depegging.

Zeide

[National Pearl]

I know this is an older post, but it caught my eye. I did a report on the Chinese Yuan about a year ago and based on independent (and unconfirmable) analysis from sources such as "countrywatch" and EIU (economic intelligence unit) eventually, if the Chinese government allows the YUAN to pursue a true "float" versus the dollar, we could eventually see the dollar drop as far as a 1:4 ratio. Even such drastic speculation however, pushes that possibility out pretty far to about 2010.

Even though the current devaluation of the dollar doesn't affect pearl prices drastically, something we have been hearing from our pearl suppliers is that the cost of labor has increased significantly. This is very believable as we know that labor costs, all up and down the coast line is increased dramatically over the last few years in almost every industry. Pearl farms have to compete in the same labour markets, because if a basic laborer can make $.60 an hour at the pearl farm or $1.20 an hour at a die casting factory, they will choose the factory.

In the near term, I think that escalating labor costs will affect each of us more than devaluation of the dollar vs the yuan.

What are everyone else's thoughts on this?

[Zeide Erskine]

Hi,

I agree completely. And more power to them.

Zeide

[National Pearl]

"more power to them".

Exactly Zeide. And our economy as a whole will benefit as the chinese (and other economies around the world) increase their purchasing power via increased salaries. Though most people fear the decrease of our purchasing power of chinese products, the upside is that when the chinese are "rich" enough to afford more American made products, it will open a huge market for American industry. It may hurt those of our business's that focus on importing freshwater and akoya pearls from china, but it will help the American economy as a whole.

[Zeide Erskine]

Hi Andrew,

I see it as primarily helping the American people as a whole. With Chinese imports beoming more expensive, American products become more competitive. That means more U.S. companies have to hire more people at home and at better terms.

Zeide

[Caitlin]

I think it makes pearls an investment. Whether your interest in pearls is retail wholesale or personal, it is a good time to stock up before CFWP esp, reach a much higher value.