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May 19th 2005

China marches on towards revaluation

China has moved one step closer to revaluation. In its latest move, China officially opened a foreign exchange market, where the Yuan may eventually trade against other currencies. The electronic system currently allows eight currency pairs to be traded, none of which include the Yuan. Some analysts have questioned the short term viability of this exchange. Its success will be entirely conditional on the participation of foreign banks and institutions, they argue. The move occurred just hours after the US warned China that failure to float the Yuan within 6 months could result in China being labeled a "currency manipulator." Such a distinction would have serious implications for Sino-US trade. China insists that it still needs to liberalize some if its capital controls, as well as move towards market-driven interest rates, before it can make the switch. Nonetheless, this electronic forex system is a step in the right direction. The Financial Express reports:

Shanghai Securities and Futures Institute economist Jin Dehuan said in the longer term the system would help China find more effective ways to determine the yuan exchange rate. It offers an example that regulators can draw on before breaking the yuan’s dollar peg.

Read More: China prepares for flexi-yuan with new trading platform

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Posted by Adam Kritzer | in Chinese Yuan (RMB) | 1 Comment »

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One Review of “China marches on towards revaluation”

  1. Wahyd Says:

    Will the Chinese government lose “face” if it devuales too soon after being pressed by the US? Wont this make China look week?

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