China's Yuan May Strengthen Against the Dollar

Investors last week were buzzing about a report released by the Chinese central bank ahead of President Obama's visit to the country, which indicated that Beijing might once again be thinking of letting the yuan rise to reflect China's growing heft in the global economy. The report surprisingly omitted the usual language that Beijing would keep the yuan "stable at a reasonable and balanced level." The yuan's relatively low value is a key reason that Chinese exports remain so competitive on the global stage; it's also a reason for major trade imbalances between the United States and China, something that underscored the recent global financial crisis.

But economists say the Obama administration shouldn't expect any ­major change in the short term. "A token shift [in the currency] is the best I would expect," says Morgan Stanley Asia chairman Stephen Roach, noting that China's recovery is still fragile. What's more likely is that, assuming steady economic growth, Beijing will eventually resume its policy of letting the yuan slowly appreciate, something it had capped last year with the advent of the financial crisis and the plunge in exports. Currency watchers, take note: if the yuan does start rising steadily again in 2010, it will be a sign that ­China is confident it can move away from export de­pend­ence and views its economic recovery as real and ­lasting.

China's Yuan May Strengthen Against the Dollar | News
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