Jun 21, 2010

China decides to let the renminbi appreciate

China has just decided to let its currency appreciate. While some argue this won't matter that much, Bob Mundell signaled that it may erode stability in the global and Chinese economies:

Keeping the yuan pegged to the dollar has been “a great source of stability” for China and the world... While Barack Obama welcomed the move, “he is not an economist." The yuan climbed the most in 18 months against the dollar today after the central bank said June 19 it will increase the currency’s “flexibility.” The announcement was ahead of a G20 summit this week where leaders will discuss how to sustain the global recovery and prevent a repeat of the financial crisis. Mundell, credited as the intellectual “father” of the euro, has previously called for the euro to be fixed against the dollar, saying exchange-rate swings were a cause of the global financial crisis. The central bank’s announcement followed pressure from trading partners including the US, where lawmakers threaten legislation that could penalize Chinese imports. Mundell  called the Chinese move “political.”
ht: Bunk

1 comment:

Cam said...

Dominique Strauss Kahn seemed happy about it:

"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. A stronger renminbi 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."