April 28, 2005
Babu Ghanta
India Daily
According to sources from Bejing, China plans to implement partially flexible currency by end of 2005. United States is encouraging China to do so. The Chinese currency’s appreciation against US dollar will help reduce American trade deficit and also help China in reducing its bill on imported crude oil. China is going through major restructuring of its banking system to help the transition at the end of the year.
China Banking Regulatory Commission Vice Chairman Shi Jiliang said on April 27 that China is examining its options under World Trade Organization (WTO) commitments to limit foreign access to the country's banking sector in order to avoid "excessive competition between foreign and Chinese banks." One such strategy would be to ban foreign banks from buying stakes in more than two major Chinese banks. Currently foreign banks are only allowed to carry out business in local currency in 18 Chinese cities. The end of 2006 will lift all restrictions as part of China's WTO agreements.
India will also have to go through similar revaluation of currency. Washington at this time is not exerting pressure on India to revalue the currency. But the outsourcing boom has manifested India’s apparent financial strength with increased Foreign Direct Investments and ballooning Foreign Exchange Reserves. This means Indian Rupees will also be revalued and made flexible over time. A realistic target of Rs. 32 to 1 US Dollar is what some international finance think tanks are talking about. Many in Indian financial sector believe such a target is non-realistic.
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