Black Market In Chinese Yuan

Press, Volume C, Issue 29518, 20 May 1961, Page 16

Black Market In Chinese Yuan

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PAUL WOHL]

(Reprinted from The “Ch: A sharp drop at the freemarket value of Communist China's hitherto relatively stable currency, the ytian, is an indication that in those countries where the yuan is traded the rating of Peking's economic and hence political and military potential has gone down.

Like all Communist currencies, arid many free-world currencies, the yuan is not legally convertible and cannot be exported. Actually quite large amounts of yuan bank notes find their way into the black markets of Indonesia, Burma, India, and other Asian countries. These also are the countries with large Chinese settlements. These overseas Chinese, many millions of them, visit their homeland and correspond with theii families. . Other channels through which uncensored news about.

conditions in Communist China reaches the outside world are the widely ramified black market connexions of such peripheral cities as Hong Kong, Macao. Hanoi, Saigon, and Bangkok. Substantial Traffic These channels of news and correspondence also convey a still substantial traffic in hard currencies and gold which continue to be hoarded all over China. According to Pick’s Currency Yearbook for 1960, more than 70,000,000 dollars of. foreign, gold found its way into China in 1959.

For last year the illegal flow of gold into China was estimated by Mr Pick at 50.000.000 dollars. In spite of increasingly efficient border control by Chinese authorities, part of the gold is paid for in yuan. The many visiting overseas Chinese smuggle out yuan which they sell in the countries of their residence to pay for remittances to their families at home.

By way of Hong Kong illegal remittances move in the opposite direction. Mr Pick reports than in 1959 these illegal remittances from and to China “continued to reach their desination with little hurdles.” Another medium through which yuan 'bank notes reach the outside world are Chinese officials and technicians who frequently take yuans along with them when they travel abroad. These various sources keep the Asian markets of yuan steadily supplied. The sharp drop of the yuan in the first three months of this year shows that the keeneared traders in Hong Kong and in the large cities of South-east Asia no longer view Chinese domestic and foreign trade developments with their former optimism. Official Rate The official rate of the yuan is 2.40 for 1 dollar. The black market rate of the yuan in relation to the dollar has fluctuated between yuan 445 in 1955. when this currency was introduced, to yuan 6.15 in March, 1960, with ups and downs in between. In March. 1959. the yuan reached an all-time high with a rate of yuan 4.39 for 1 dollar. Tn January, 1959, 1 dollar brought yuan 7.29.

The over-all movement of On September 15. 1959. Pick’s World Currency Report recorded a 23 per cent, rise for the Red Chinese yuan as compared to September, 1958.

On September 15. 1960, the uan again had risen by 6

iristtan Science Monitor”] per cent At the end of last; year the rising trend slowed down to one-third of 1 per cent Last J>anuary it took yuan : 7.M to buy one dollar. By the end of March suddenly the dollar brought yuan 11.7. . Or, the other way round: Whereas it took 14.18 United States cents to buy one yuan in January, it now takes only 8.59 cents, a drop of 49.4 per cent. The downward trend of the yuan contrasts with the relatively favourable rating of several, other Communist bloc currencies. The Czechoslovak koruna, for instance, rose by 25 per cent, in the first quarter of ; this year, reaching an all-time high in the black . market, i The Polish zloty rose by 18.8

per cent. The new rouble on the other hand, showed a slight downward trend. According to a usually reliable spot report, one dollar brought roubles 3 5 to 4 at the beginning of the year. This relatively high rate probably was caused by the scarcity of new rouble bank notes at the beginning of the conversion period (January to March). On March 31. according to World Currency Report, it took six new roubles to buy one dollar. The official rate is rouble 0.90 (90 kopeks) for one dollar Old Parity Restored Thus the old parity has been restored, regardless of the allegedly changed gold content of the rouble and the new exchange rate decreed by Moscow. In the first quarter of last year the dollar brought between roubles 28 and 27. Since the official rate ait that time was four roubles for one dollar, the dollar’s black market rate was seven times higher. The black market rate of the dollar expressed in new roubles is 6.6 times the official rate.

On this basis the black or free marker! rate of the rouble would seem to have remained unchanged. This reflects the cautiously optimistic view which freeworld traders, as well as the under-the-counter money changers in Moscow and other large Soviet cities, are taking of the economic prospects of the U.-S.S.R. Although too much Importance cannot be attached to these free-market rates, because the transactions involved are picayune compared to the official foreign trade volume, they remain significant, since money changers through the ages have displayed a seismo-graph-like sensitivity to the ups and downs of the economy.

Whether the new trade pact, which Moscow and Peking after six months haggling now seem to be ready to sign, will have a stabilising effect on the yuan remains to be seen.