China Allows Value Of Currency To Fluctuate


In advance of the approaching G20 summit in Toronto, China’s central bank allowed its nation’s currency, the Yuan, to rise .42% yesterday against the dollar, the largest daily increase since 2005. The move, analysts say, was made to help ease international tension prior to the summit and appease critics who have argued the Yuan is artificially low, giving Chinese exporters an unfair competitive advantage in global trade. “I think it takes an irritant off the table in the U.S.-China relationship,” said Jon Huntsman, U.S. ambassador to Beijing.
However, by the end of yesterday and in the beginning of trading today, the yuan had depreciated again to its original value. Analysts say the sudden shifts show China’s new willingness to allow markets to dictate the currency’s value, but also that the government will not allow it to appreciate quicker than it is comfortable with. In response to the flcutuating value of the Yuan, many major stock indexes rose sharply on Monday. Meanwhile, President Barack Obama called the move “a constructive step that can help safeguard the recovery” and a spokesman for Japan’s finance minister described the revaluation as “a plus for the China and Asia economies as well as the world economy.”
Besides improving the flow of global trade, economists believe a strengthened Yuan will help China control inflation and reduce its dependence on export-driven growth, yielding to increased domestic consumption. However, the increase in value of the yuan will also lead to increased costs on goods exported from China, such as many of the items sold in the ad specialty market. “In the long run, export businesses would improve business management and expand the industrial chain to make themselves more competitive internationally,” said Yao Jian, a spokesman for the Chinese Commerce Ministry.
While the revaluation is viewed by most as a positive step, analysts warn that China will not allow the Yuan to appreciate too quickly. A recent Reuters poll showed 33 economists expect the Yuan to end 2010 at 6.67 per dollar, a rise of only 2.4% from late last week. The policy decision by China to strengthen the Yuan slowly has already angered several key U.S. legislators, including Senator Chuck Schumer, vice-chairman of Congress’ Joint Economic Committee. “Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off,” said Schumer. “It vindicates our initial skepticism.”
Unconvinced the revaluation will provide significant change to global trade markets, Schumer and Senator Sherrod Brown have introduced a bill that could lead to China being branded a currency manipulator by the U.S. The legislation would eventually allow the U.S. to impose tariffs on Chinese exporters and raise costs on Chinese goods even further. It’s a move the Obama administration has not voiced support for.

In advance of the approaching G20 summit in Toronto, China’s central bank allowed its nation’s currency, the Yuan, to rise .42% yesterday against the dollar, the largest daily increase since 2005. The move, analysts say, was made to help ease international tension prior to the summit and appease critics who have argued the Yuan is artificially low, giving Chinese exporters an unfair competitive advantage in global trade. “I think it takes an irritant off the table in the U.S.-China relationship,” said Jon Huntsman, U.S. ambassador to Beijing. However, by the end of yesterday and in the beginning of trading today, the yuan had depreciated again to its original value. Analysts say the sudden shifts show China’s new willingness to allow markets to dictate the currency’s value, but also that the government will not allow it to appreciate quicker than it is comfortable with. In response to the flcutuating value of the Yuan, many major stock indexes rose sharply on Monday. Meanwhile, President Barack Obama called the move “a constructive step that can help safeguard the recovery” and a spokesman for Japan’s finance minister described the revaluation as “a plus for the China and Asia economies as well as the world economy.”
Besides improving the flow of global trade, economists believe a strengthened Yuan will help China control inflation and reduce its dependence on export-driven growth, yielding to increased domestic consumption. However, the increase in value of the yuan will also lead to increased costs on goods exported from China, such as many of the items sold in the ad specialty market. “In the long run, export businesses would improve business management and expand the industrial chain to make themselves more competitive internationally,” said Yao Jian, a spokesman for the Chinese Commerce Ministry.
While the revaluation is viewed by most as a positive step, analysts warn that China will not allow the Yuan to appreciate too quickly. A recent Reuters poll showed 33 economists expect the Yuan to end 2010 at 6.67 per dollar, a rise of only 2.4% from late last week. The policy decision by China to strengthen the Yuan slowly has already angered several key U.S. legislators, including Senator Chuck Schumer, vice-chairman of Congress’ Joint Economic Committee. “Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off,” said Schumer. “It vindicates our initial skepticism.”
Unconvinced the revaluation will provide significant change to global trade markets, Schumer and Senator Sherrod Brown have introduced a bill that could lead to China being branded a currency manipulator by the U.S. The legislation would eventually allow the U.S. to impose tariffs on Chinese exporters and raise costs on Chinese goods even further. It’s a move the Obama administration has not voiced support for.

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