Exchange rate GBP and CNY

[joshuawbb]

Hello everyone,

Firstly, I'm sorry for suddenly jumping in here with a new topic. I cannot really find concise information elsewhere, so I thought perhaps someone could help me here.

As I'm sure you now know, the GBP has been hit very hard in the current financial crisis, and has lost much value against many other currencies. The exchange rate used to be about 15CNY to 1GBP, however this has now dropped to about 10.1CNY to 1GBP, and it is going up and down in fairly unstable amounts every minute.

My question is: can anyone advise me - will this get worse? The UK is now in a recession which will last at least a year.

I am planning on literally moving to China next year - I have already confirmed my plans and will be going in June. I'm currently a college student here in the UK, and next June/July I will be moving to live in China; to study the language for 1 year for HSK qualification, and then doing the usual 4 years of an undergraduate university course for my degree. I will most likely be living in Xiamen, perhaps in an apartment.

All of my savings are devoted to moving away, and large cost rises are likely to cause a lot of strain, though it seems I wil be okay as long as it doesn't drop too low. I have a part-time job here for saving money of course, but no matter what happens to the economy here wage increases just aren't going to happen - not that I can imagine, anyway.

I am nowhere near an economic expert, and I have no idea of what may lie in the future. Do you think the value of the GBP vs CNY will drop even further?

Thank you very much.

Edited January 11, 2009 at 08:36 AM by joshuawbb

[roddy]

I certainly don't expect it to go up. While it's not the only factor, UK interest rates are only going down, and that means a weaker currency. Basically your best hope is that the Chinese economy suffers too and both currencies plummet in tandem so you get the same rate. I wouldn't bet on it though.

Edit after your edit.

Bear in mind there's always going to be the option of getting a job - even a few hours English teaching a week will go a long way towards supporting yourself.

Edited November 13, 2008 at 09:26 AM by roddy

[joshuawbb]

Thank you very much for your fast reply - I guess the outlook is rather bleak at the moment, though I should see what happens nearer the time.

I had been thinking about a job too - it would certainly be essential in supporting myself. The only questions I would have are about the visa issue - I've had conflicting information from many sources. Just to clarify, I am a college student working to my A-levels, and I'm not a degree student (I would be earning my degree in China should everything go as planned).

I would be going there on an X visa since I would be a very long-term student, and I already know that it's illegal to work without a Z visa - but what sort of work? I contacted China Service Mall about it (an online help/agency organisation, they have planned most of my study application so far), and they told me that I can easily get a part-time job such as in a Western restaraunt or something among that lines, etc and that would be okay on my visa. But I would need a Z visa for a full-time job, which of course I'd need a degree for visa sponsorship.

I'm sorry for going off-topic a little here, I'm a little confused by that.

[peekay]

The recent steep drop of GBP vs CNY has as much to do with the rise of the US Dollar as the strengthening of the CNY itself. As you may know, CNY is heavily influenced by USD. So a 4% rise of USD vs GBP, plus a 2% rise of CNY vs USD, means roughly a 6% CNY gain vs. the GBP just in the past 2 quarters.

In the near term, unfortunately it's almost certain that the GBP will further weaken vs the US Dollar (and by extension, the CNY.)

In the longer term, no one knows what will happen. I've seen forecasts showing the GBP recovering virtually all of its lost ground vs the USD, while other forecasts show the exact opposite.

You could try to hedge buy purchasing USD (or even the Japanese Yen) now, but depending on the amount (and if you take into account the transaction fees plus another conversion in the future to CNY), this strategy might not be worth it.

Your best bet unfortunately might be to simply accept that prices will be higher by the time you go and try to budget accordingly + cut expenses as needed. On the bright side, studying in China will still likely represent a great future investment for you, even taking into account the higher cost.

[adrianlondon]

Yeah, it's a shock. When I lived in Beijing in 2006/2007 I got 15y to the pound. When I went to Shanghai last week it was 10. Luckily, I took loads of RMB back with me from Beijing as I always thought the £1 to 2US$ was never going to last. However, the hotel was still paid out of "current" money, so that hurt a bit.

As has been said, the CNY is linked to the US dollar Three things have conspired to make things expensive for you. 1) The dollar is very strong, 2) until recently, America badgerd China to let its currency rise against the dollar and 3) the UK pound is very weak.

I don't see it getting too much worse but I reckon on it staying around 10-12 to the pound for quite a while, if not permanently. In my opinion, the pound was very (too) strong over the last couple of years so it'll never go back to how it was. It'll still be cheaper in Xi'an than it is in Hampshire and to expect a country to remain poor for your benefit is never going to happen ;)

[roddy]

I don't see it getting too much worse but I reckon on it staying around 10-12 to the pound for quite a while, if not permanently.

I'd like to think that, but where is this graph going? The trend's pretty clear and while I am in no way an expert I don't see that there's anything stopping it bar hope. Going to be painful to see it break the 10:1 mark, but it looks inevitable and there's no reason for it to stop.

'Course, I'm guessing.

[rob07]

Sterling is a floating rate currency. That means its value is set by global foreign exchange markets - ie: one pound is worth whatever an investment banker in Paris or New York is willing to pay for it in Euro or US dollars. Things do look grim for the UK, but they also look pretty bad for most other countries. The current sterling exchange rate represents global market consensus about how the UK will go relative to other countries, and the best expectation of interest rate movements, inflation etc is built in. To be able to know whether sterling will go up or down against, say, the USD you would have to be able to evaluate whether this consensus was optimistic or pessimistic. To be qualified to evaluate this you would need to be both a trained economist and a genius. Anyone who is both of these things is probably making millions trading foreign exchange at an investment bank.

The Renminbi is different. The Chinese government does not allow its value to be set by the markets, but sets its value to what it thinks it should be by reference to a number of foreign currencies. I understand that these foreign currencies are dominated by the U.S. dollar, euro, Japanese yen and South Korean won, with a smaller proportion made up of the British pound, Thai baht, Russian ruble, Australian dollar, Canadian dollar and Singapore dollar.

Almost all informed observers agree that the Chinese government deliberately sets the value of the renminbi to lower than it is actually worth for a variety of reasons, including because this makes it easier for China exporters to sell things overseas and also brings foreign investment into China. This is almost certainly not sustainable in the long run and it can be reasonably confidently predicted that the renminbi will increase in value over time (although how long this will take is anyone's guess).

So in response to your question about what will happen to the GBP:CNY exchange rate in the future, the answer is that it depends on two things: first how the GBP does in foreign currency markets relative to the currencies that the CNY's value is linked to (no-one really knows) and second, to what extent the Chinese government changes the basis on which the value of the renminbi is set (in the long run the value of the renminbi will almost certainly increase relative to other currencies).

So, in summary, the GBP:CNY exchange rate is probably going to get worse, although this could take a long time. Foreign exchange values are inherently uncertain.

[AxelManbow]

Look at the trend, it's falling off a cliff, following that trend we'll be looking at 1:1 in a couple of years' time.

Well, probably not.

If anyone was any good at predicting exchange rates they'd be rich and retired before they knew it themselves, including economists/analysts of the best banks.

Exchange rates trend over varying amounts of time, converge over other varying amounts of time, sometimes diverge and are sometimes stochastic. It's extremely hard to predict a market.

Having said that we do know some things:

• RMB is appreciating against USD, a fixed appreciation. Range traded since early August.
  
• USD has been volatile against other floating currencies (or perhaps floating currencies have been volatile against it).
  
• Looking at a few decades' worth of exchange rate data shows one clear thing: in times of crisis financial capital flees to the most liquid markets. The most liquid markets are those of the US Dollar, hence a rally in USD.
  

We should perhaps ask these questions:

• Is CNY going to appreciate much against USD? I'd say a hesitant 'no'. Inflows of capital are less of a concern and the appreciation of the USD against other currencies has resulted in quite a hefty appreciation of CNY against EUR, GBP, etc. CNYUSD has range traded for the past few months as pressure of appreciation has fallen.
  
• Is GBP going to change much against USD under fundamentals? Possible. Don't know which direction. Unexpected good news for GBP will probably result in appreciation against USD. Reverse possible. Economic speculation.
  
• What are markets going to do? There probably was some rush-selling into USD creating an over-buy, especially on cash short end of the MM curve. This won't necessarily reverse, if Indonesia suddenly implodes further fears about EMs will cause greater flight.
  

It is volatile at the moment and no one does know where it will go. There are certain limits on this volatility - how cheap is the UK compared to France, Germany and the US is a basic measure. Ever look at the BigMac index for some indication of over/under valuation? It's a fun measure but some similar methodologies often work over the *very* long term in large diversified economies. One year is too short term.

Whatever GBP/USD does, USD/CNY may appreciate to an extent over the next 12 months and is unlikely to depreciate. If looking for a buy I'd buy CNY if it hit 12 against GBP over next 3 months - quite possible with all the vol going about. Of course, make sure you get a good deal or transaction fees could wipe off a whole yuan to your pound.

Also, when buying currency and seeking lower risk it's often good to time-average purchases. For example, if GBPCNY hit 12 on 1st December I might want to transfer 1/4 of money then and wait a pre-determined number of days, with personal buy/sell limits if it traded out of certain ranges - time averaging is a way of limiting exposure (on upside as well as downside I might add) to unexpected/freak peaks. While an upside peak might mean you could buy a few more beers a downside peak might mean a term less of course fees - that's bad risk. Move slowly and don't rush into any snap/fear driven purchases/sales - that's part of the cause of this financial turmoil.

How much did you budget for the year? Around 50k RMB?

Pulled up a GBPDEM chart (attached). Some people are saying the pound is bum-clenchingly cheap. I'm not sure, but it is on the cheaper side of 2 decades.

Edited November 14, 2008 at 07:51 AM by AxelManbow

[joshuawbb]

Thank you very much everyone for your excellent replies; as I said I had almost no idea about how such currency trends/changes worked before, so they have been very useful to my understanding.

I guess - well, I sort-of guessed before - that the outlook for the GBP is certainly not bright, though perhaps the best thing to do is wait or try the part-by-part money transfers. For a brief period last night (London time zone) the GBP dropped below the 10:1 line, though I suppose I shouldn't keep watching these charts, they make me a little paranoid, haha.

Thank you for the charts too. I agree, the trend is certainly falling off a cliff at the moment, so hopefully it'll at least pick up a little sometime soon.

The year's tuition fees are looking at CNY18,000 which is paid in parts monthly, and I am unsure of accommodation costs (I'm looking into a small apartment). My budget will be tight and I am looking into somewhat around CNY50,000 when I leave, but that has got to last me more than just one year - which is why I am really hoping to find some sort of job.

[AxelManbow]

Trends don't last forever, they can't. For GBP to fall behind USD much more for a significant amount of time would mean the UK economy is in horrendous shape and you'd probably be better off out of it.

If the UK is in horrendous shape: I have a couple of friends in Dalian, one around 19 when he arrived, one late 20s, that enrolled in a full 4 year degree program in Chinese Language and Culture (the college also offer Chinese and International Business) specifically taught to non-native speakers with varying/little Chinese on arrival. They had to work hard but for both their hanzi skill now beats the pants off most Japanese in their class (mainly Russian, Japanese, Korean do this option, some Thai), even most average Chinese university students in 2nd-3rd tier unis. [Hello if you're reading this]. They both dislike the university and hate the administration but are rightly proud of their achievement, it's certainly distinctive enough to get an upper hand when interviewing for a job.

An option I wish I was aware of when planning on entering uni.

[roddy]

There's always English teaching work available, plus you'll have holidays to work in if you want. I don't know specifically about Xiamen, but I'd imagine you're looking at 100 to 200Y per hour for teaching work, which is no bad hourly rate compared to your average pub / shop job in the UK.

[realmayo]

Unless the UK is seen to be completely bust, I don't see why the pound would go a great deal lower (against the dollar). I think people are more perplexed over what the dollar itself will do, it if will stay strong for the next year or two? But -- no one seems to know really!

[anonymoose]

The shape of the economy in both the US and the UK is bad, so why is the dollar strong and the pound weak?

[Christiet33]

This has been hugely interesting, as I am moving to Beijing to live in two weeks and have been looking at exchange rates everyday with a view to bulk buying some currency before I arrive. Today was 9.9, the highest I've seen in a while. I will hold out another few days and see what happens, though. 12 would be amazing... am I living in a dream world?

Apparently flat deposits are required in cash and the Bank of China changes significant fees for withdrawing large amounts, could anyone confirm this? This is the reason I'll be taking £1500 with me.

Thanks for the very informative thread, really useful.

[roddy]

12 isn't impossible at the some point in the future - it was only a month or so ago that the pound fell below that level in the first place. This time last year you would have got 15 or so. Wouldn't count on it going to 12 within two weeks though, and at some point you have to stop watching the exchange rate and get money to eat. Still, it's nudged up to 10.5 now, so you never know.

Not sure what you mean by withdrawal fees from BoC. There aren't any I'm aware of, and even three months rent + deposit isn't a large amount in banking terms. You may incur fees wiring money into the country or making withdrawals on your home bank card, but that's down to your home bank, not BoC. If the money's already in a BoC account you can just take it out via ATM (20,000RMB daily limit with my account) or over the counter.

As for bulk buying currency before you arrive - have you checked all your options? I'd expect it to be cheaper to buy it here. BoC rates at the moment would give you 1046.89 for GBP100, M&S in the UK (Post Office site ain't working) only 982.14. Plus, GBP1500 is a lot less bulky to carry than the equivalent RMB.

[Christiet33]

Thanks so much Roddy, it does sound like taking cash with me to exchange there is the way forward. Cheers!

[joshuawbb]

I'm sorry to revive an old thread, but I have a rather strange thing for you to see:

I think this must be a site error or something - according to x-rates.com, the GBP vs CNY dropped to CNY1.24 per £1 on November 12th, curiously for that one day.

http://www.x-rates.com/d/CNY/GBP/data120.html (look down the list for November 12th)

Anyway, I'm pretty certain that's some sort of site error - I can't find any other evidence for it. After all, that's surely utterly impossible - for the CNY to reach a near 1:1 rate to the pound or any such currency, whether for 5 minutes or not. It just sounds too bizzare to be true. Imagine paying £24,000 for university tuition fees, haha...

Just wanted to share that with you.

[peekay]

Interesting error. A different source for comparison:

http://www.exchange-rates.org/history/CNY/GBP/T

shows 10.51369 for Nov 12.

[roddy]

Going to be painful to see it break the 10:1 mark, but it looks inevitable and there's no reason for it to stop.

We're at 9.57 now according to Yahoo, BoC is listing 9.51. Hey ho . . .

[adrianlondon]

Painful. And I was thinking of a short holiday to HK and China in a few weeks' time. It was 15 to the pound two years ago. Still, Sterling's bad against everything right now (apart from the Zimbabwe dollar, but at least their banks are paying decent interest ;)