From Volume 4, Issue Number 30 of EIR Online, Published July 26, 2005

World Economic News

People's Bank of China Ends Dollar Peg

The People's Bank of China adjusted the renminbi-dollar exchange rate by 2.1% July 21, and ended the renminbi peg to the U.S. dollar after a decade. The RMB will now trade at 8.11 to the dollar, rather than 8.28, where it had been set. The PBOC will allow very controlled "floating" of the RMB against the dollar and other currencies (yet unspecified) and the Bank will maintain a "basically stable" RMB exchange rate, the announcement said.

The PBOC announced that henceforth, "China will reform the exchange-rate regime by moving into a managed floating-exchange-rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the U.S. dollar and the RMB exchange rate regime will be improved with greater flexibility....

"The daily trading price of the U.S. dollar against the RMB in the interbank foreign-exchange market will continue to be allowed to float within a band of 0.3% around the central parity published by the PBOC" each day, "while the trading prices of the non-U.S. dollar currencies against the RMB will be allowed to move within a certain band announced by the PBOC."

"The PBOC will make adjustment of the RMB exchange rate band when necessary according to market development as well as the economic and financial situation.... The People's Bank of China is responsible for maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level, so as to promote the basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability."

On the same day, Malaysia also ended the dollar peg of its currency, the ringgit, according to BBC.

EIR will be further evaluating this obviously very significant development.

Ibero-American Gov'ts Help To Bail Out Financial Bubble

The countries of Brazil and Mexico announced this week that they will be pre-paying billions of dollars in debt to the IMF. In a statement released on the evening of July 13, the Brazilian central bank said it expected to pay $5.12 billion by July 25, which was not actually due until next year, under the pretext that Brazil is "enjoying favorable market conditions."

So, too, the Fox government in Mexico is buying nearly $3 billion of central bank reserves to meet payments on all foreign debt coming due in 2006 and 2007, increasing the "domestic" debt in order to pay off foreign debt. Fox had announced this plan back in late May, at the same time that both Colombia and Peru were also pre-paying portions of their debt.

In contrast, the new government of Ecuador has won legislative approval for re-allocating its oil-profits fund away from debt pre-payment and towards social needs such as education and health infrastructure.

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