Laohucaijing.com published a commentary about the speech that Zhou Xiaochuan, president of China’s central bank, gave at the meeting of the International Monetary Fund (IMF) on April 18, 2015. The commentary warned that, based on Zhou’s remarks, the bubbles in China’s housing and stock markets will burst in the second half of 2015 and RMB depreciation may be likely.
According to the commentary, Zhou’s speech was very detailed and important, unequivocally demonstrating China’s determination to be included in the IMF’s Special Drawing Rights (SDR). The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese yen, and pound sterling).
The core of Zhou’s speech was that the Chinese Government is working to allow free conversion of the RMB, or at least managed free conversion. The condition for joining SDR is free conversion of the RMB, which China cannot do at the moment. Therefore managed free conversion is a major step forward. If managed conversion is implemented, the bubble in China’s housing and stock market will burst. Chinese will be looking all over the world for investment opportunities. To avoid a reduction in foreign exchange reserves, China’s central bank may depreciate the RMB in the second half of the year.
Source: Laohucaijing.com, May 7, 2015