Wider trading band for yuan may facilitate gradual devaluation

Section:

China Gives Currency More Freedom with New Reform

By Koh Gui Qing
Reuters
Saturday, April 14, 2012

http://uk.reuters.com/article/2012/04/14/uk-china-cbank-yuan-band-idUKBR...

BEIJING -- China took a milestone step in turning the yuan into a global currency on Saturday by doubling the size of its trading band against the dollar, pushing through a crucial reform that further liberalizes its nascent financial markets.

The People's Bank of China said it would allow the yuan to rise or fall 1 percent from a mid-point every day, effective Monday, compared with its previous 0.5 percent limit.

Analysts said the timing of the move underlines Beijing's belief that the yuan is near its equilibrium level and that China's economy, although cooling, is sturdy enough to handle important, long-promised, structural reforms.

The move could also help China deflect criticism of its currency policy ahead of the annual spring meeting of the International Monetary Fund in Washington next week.

... Dispatch continues below ...



ADVERTISEMENT

Prophecy Platinum (TSXV: NKL) and Ursa Major Minerals
Sign Combination Agreement

Company Press Release
Friday, March 2, 2012

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) and Ursa Major Minerals Inc. have signed a binding letter of agreement for a business combination through a proposed all-share transaction. In doing so Prophecy and Ursa have acted at arm's length and the transaction has been negotiated at arm's length.

Prophecy will issue one common share in exchange for every 25 outstanding common shares of Ursa. Ursa options and warrants will be exchanged for options and warrants of Prophecy on an agreed schedule.

Prophecy's offer represents a value of about $0.15 per each common share of Ursa based on Prophecy's share price of $3.70 as at March 1, representing a premium of 130 percent to Ursa's March 1 closing price of $0.065.

Prophecy is to subscribe for $1 million common shares of Ursa by way of private placement financing at $0.06 per share, subject to regulatory approval. Upon placement completion, John Lee and Greg Hall, current Prophecy directors, will be appointed to Ursa's board.

Prophecy thus will become a mid-tier resource company with a robust and diversified pipeline of platinum nickel projects, including:

-- The fully permitted open-pit Shakespeare PGM-Ni-Cu mine close to Sudbury, Ontario, infrastructure with near-term production capabilities.

-- The flagship Wellgreen (Yukon) PGM-Ni-Cu project with more than 10 million ounces of Pt-Pd-Au inferred resource. Drilling is under way and a preliminary economic assessment study is pending.

-- Manitoba's Lynn Lake Ni-Cu project with more than 262 million pounds Ni and 138 million pounds Cu measured and indicated.

For the complete announcement, please visit Prophecy Platinum's Internet site here:

http://www.prophecyplat.com/news_2012_mar02_prophecy_platinum_ursa_major...



A slowing world economy that has pared investor expectations of a steadily rising yuan likely also gave Beijing the confidence to proceed, knowing that a larger band would not necessarily lead to a stronger currency.

"The central bank chose a good time window to enlarge the trading band. The market's expectation for a stronger yuan is weakening," said Dong Xian'an, chief economist at Peking First Advisory in Beijing. "The move partially clears away doubts on whether China can manage a soft landing in its economy, and makes clear China's reform roadmap."

Investors have widely expected China to widen the yuan's trading band this year, thanks to repeated hints from Beijing that the change would take China one step closer to its financial goal: a basically convertible yuan by 2015.

Having a currency that trades with fewer restrictions also enhances Shanghai's status as a financial center. China envisions turning the city into a global banking hub by 2020.

"From April 16, 2012, the renminbi exchange rate against the dollar in the spot interbank currency market will be widened from 0.5 percent to 1 percent," the People's Bank of China said in a short statement on its website.

"China's foreign exchange market is maturing. The market's ability to price and manage risks is growing," the bank said.

Lan Shen, an economist at Standard Chartered Bank in Shanghai, said given that the yuan was estimated to be close to its equilibrium level, the currency was likely to gain only 1.4 percent against the dollar this year.

The yuan, which hit a record high of 6.2884 against the dollar on Feb 10, is little changed against the U.S. currency for the year, softening 0.14 percent since January.

The yuan rallied by about 5 percent in 2011 and nearly 4 percent in 2010, giving economists and markets the impression that Beijing was comfortable with a steadily appreciating currency. It has gained about 30 percent in nominal terms against the U.S. dollar since the landmark move in the summer of 2005 to de-peg the yuan from the greenback.

Premier Wen Jiabao and Central Bank Governor Zhou Xiaochuan both said in March conditions were ripe for the yuan to float more freely to better reflect market demand and supply.

Their repeated calls for reforms came even as China is set to confront its slowest economic growth in a decade this year, leading many to believe Beijing is ready to tolerate less heady growth in exchange for a restructured economy that is driven more by domestic than export demand and has greater flexibility to withstand fallout from external economic shocks.

Some analysts say a more flexible yuan, also known as the renminbi, works in China's favour in turbulent times as it gives it more room to guide the currency lower to aid exports.

"The message of this move is that RMB's appreciation story is over. Greater two-way volatility will be the name of the game going forward," said Qu Hongbin, an economist at HSBC.

Data showed on Friday that China's economy suffered its weakest growth since the global financial crisis in the first quarter by expanding just 8.1 percent, below forecasts for 8.3 percent.

The last time China changed its currency policy was in June 2010, after a two-year period in which the yuan had effectively been re-pegged to the dollar to help shield China from the 2008-09 global financial crisis.

The yuan's value has always been a point of contention between China and its trading partners, notably the United States, which say China suppresses the currency to boost exports. China has repeatedly rejected the accusation.

Instead, Chinese leaders say the yuan is near its equilibrium level and that authorities aim to keep its value "basically stable," more flexibility notwithstanding.

"I think the step should be welcomed by foreign countries, especially the United States, which have been calling for reforms. This is also related to growing domestic calls for economic reforms," said Dongming Xie, China economist at OCBC Bank in Singapore.

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16



ADVERTISEMENT

Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf