The yuan (RMB) surged today following the People's Bank of China's (PBOC's) announcement this weekend that it would greater flexibility in its currency's exchange rate.
On Saturday the PBOC announced that
it would allow the yuan to appreciate, ending the unofficial two-year
peg to the dollar that was fiercely criticized for giving China an
unfair advantage in international markets. The move came just ahead of
the Group of 20 (G20) meeting scheduled to take place this weekend in
Toronto. Observers will be closely watching the yuan this week however,
to make sure that the currency actually does move and that China's
announcement of increased flexibility was not merely a hollow gesture.
first indications today were positive, as the yuan rose by 0.45% to
6.7969 per dollar after the PBOC set the daily reference point for
A stronger yuan is expected to benefit U.S. exporters by
making them more competitive in the still-booming Chinese market.
China's domestic economy also stands to benefit from greater currency
flexibility, as noted in a statement by Managing Director of the
International Monetary Fund (IMF), Dominique Strauss-Kahn. "The People's
Bank of China announcement to increase exchange rate flexibility and
return to the managed floating exchange rate regime in place prior to
the global financial crisis is a very welcomed development," he said. "A
stronger RMB is in line with findings of the G-20 Mutual Assessment
Process, to be presented in Toronto next week, and will help increase
Chinese household income and provide the incentives necessary to
reorient investment toward industries that serve the Chinese consumer."
China's announcement was welcome in markets across the globe, it is
expected to do little to calm harshly critical American lawmakers, who
were hoping for a full on revaluation of the currency. According to the
PBOC, the Chinese government avoided such a move in the interest of
reform this time does not involve a one-off exchange rate revaluation,"
said a PBOC spokesperson. "The objective is to stabilize the RMB
exchange rate basically around an adaptive and equilibrium level, and in
the meantime, improve China´s Balance of Payments (BOP) situation, and
achieve economic and financial stability."
Jacob Barron, NACM staff writer