I am talking about the fact that RMB's value in the world is what the market says it is. Love, Jim When this is no market beside the government one, the rate of RMB will be decided by the official rate. Let's use two examples for import and export. Import: Say you have a product price in US dollar is 60. And the current government rate is 8 dollar RMB for 1 US dollar. Then you will sell it at 480 RMB in China. The reason is simple you can get 60 US dollar by giving Chinese government 480 RMB. If you think RMB is overvalued as many predicted (say it should be 10 RMB to 1 US dollar). You will still price your product in 480 RMB instead of the real value 600 RMB. The reason is simple you can get the 60 US dollar you want from Chinese government and meet your profit goal. If you price your product higher (600 RM. Few people will buy it. Hence when you calculate your profit you have to _base_ on the official rate. Export: If a Chinese firm exports a product priced in RMB at 800 (include cost and profit) and Government has a rate at 8 dollar RMB to 1 US dollar. Then he will price the product in 100 US dollar. The firm has no choice but to turn in all its US dollar to government and get RMB back at the official rate. Therefore is does not matter what the real value of RMB is (since the firm has nowhere else to do exchange). One strategy used so successfully by many Asian countries is to set a low exchange rate for its currency so that their product has a very low price in US dollar and thus increase the export. For example, if China set the rate at 80 RMB per US dollar, the above Chinese firm can price its product at 10 US dollar instead of 100 US dollar and the US firm will have to price its product at 4800 RMB which may drive it totally out the market. The key is you can only deal with government. Now let assume there is a free market beside Government. Then there will be a market value of RMB (or you may call it true value since it is decided by demand-supply). Say the free market has a rate at 10 RMB to 1 US dollar. Then the above Chinese firm will not give its US dollar to the government (since it gets less money back). But the US firm will continue get its US dollar from Government (since it can get more US dollar back). Now a trader or firm can simply buy US dollar from Government at 8 RMB/US dollar and sell it at the market for 10 RMB/US dollar. He will earns 20% profit immediate. Government will loss money until it adjusts the official rate to the market rate. Without the existence of such market, all importer and exporter will have to calculate the profit _base_d on the official rate.

Glad to hear that.  This idea of the necessary foundation, what is it? Qing Zhou < This e-mail address is being protected from spam bots, you need JavaScript enabled to view it wrote in article < This e-mail address is being protected from spam bots, you need JavaScript enabled to view it | ... | China will have a democratic system after it establishes the necessary | foundation.  Is this a Marxist interpretation or concept? | ...

Currently, China holds a very large amount official exchange reserves. Normally, one would assume, unless there are other very good reasons, a rational profit-maximizer would not borrow foreign exchange at market rates higher than the lower rates it would get holding a corresponding amount of foreign exchange in extremely liquid US government Treasury bills and bonds. I wonder what is the portion of the US dollars received by companies which they are allowed to keep.  And what the aggregate size of US dollars that is being retained by companies in their US dollar accounts. What about private individuals?  And any idea what the aggregate size of US dollars that is being kept by private individuals in their US dollar accounts? Would the total of the two aggregates correspond with the total amount of US dollar official exchange reserves that are held by China?  In other words, is the main purpose of holding such huge amounts of foreign exchange reserves not mainly for other purposes but to prudently square off the foreign exchange liabilities of the Chinese banking system to companies and private individuals, who hold such foreign exchange in non-yielding current accounts or low-yielding savings accounts.  This practice by a normally prudent banker would offer a rational reason for holding huge amounts of foreign exchange reserves as the cost to the banking system can be less than the yield it gets from holding US government treasury bills and bonds. Qing Zhou < This e-mail address is being protected from spam bots, you need JavaScript enabled to view it wrote in article < This e-mail address is being protected from spam bots, you need JavaScript enabled to view it | ... | China require all parties in China who | export or import goods to hand in the US dollar at the official rate | (China relaxes this rule a little by allowing those companies to keep a | portion of their US dollar. | ... | you are mistaken here. China has a controlled financial system. | ...

Well, here is Comrade Commentator2508 looking for creatures as he goes into all the world to preach the gospel to.  Next, you'll be asking if Danny has turned into a lion. BTW, do you have to change subject to something so unrelated to the thread? :Tom-Goodman _ < This e-mail address is being protected from spam bots, you need JavaScript enabled to view it wrote in article < This e-mail address is being protected from spam bots, you need JavaScript enabled to view it | |   This e-mail address is being protected from spam bots, you need JavaScript enabled to view it (Tiger) = Thomas Lau | | | T*o*m* G*o*o*d*m*a*n* | | Mark 16:15  And he said unto them, Go ye into all the world, | and preach the gospel to every creature. He who looks forward to Armageddon for the salvation of the world must actually have a yearn to see his ordinary fellow human beings totally exterminated from the face of the Earth.

| China require all parties in China who | export or import goods to hand in the US dollar at the official rate | (China relaxes this rule a little by allowing those companies to keep a | portion of their US dollar. Yes, its 15%

Currently, China holds a very large amount official exchange reserves. Normally, one would assume, unless there are other very good reasons, a rational profit-maximizer would not borrow foreign exchange at market rates higher than the lower rates it would get holding a corresponding amount of foreign exchange in extremely liquid US government Treasury bills and bonds. Maybe this will be a clue.  Recently (about two weeks ago) the Bank of China sold Yuan and bought US$.  The reason: there is an *up-surge* pressure on the Yuan against the US$ because of the *increased* trade surplus.  One would think that because of the Asian financial crisis, export would decrease and the Yuan would have a pressure to devalue. But, it's apparently not the case at all. The Chinese government does not want the value of the Yuan to change against the US$, either up or down.