Ado About the Yuan
China’s move to revalue the yuan from its decade-long pegged
rate of 8.28 to the US dollar to a minimum of 8.11 based
on a basket of undisclosed international currencies has
been lauded by US pols as a hopeful first step in reducing
China’s $160 billion-plus trade surplus with the United
States, and as a key factor in leveling the playing field
for US manufacturers. Nothing could be further from the
put in place a mechanism that provides room for significant
movement over time in the currency, and they’ve expressed
a commitment to using market forces to let the currency
move,” US Treasury Secretary John W. Snow said. “I think
today’s developments are extremely positive.” Federal Reserve
Chair Alan Greenspan has called the shift a “good start.”
Critics of China’s economic policy have long cited an artificially
low valuation of the yuan as the main roadblock to reducing
the deficit. Congress has even gone so far as to propose
strict tariffs beginning in September.
problem with this perspective is that it does not account
for China’s booming imports market. The strengthening of
the yuan against international currencies will allow China
to get more bang for its buck when it comes to the importation
of critical infrastructure materials such as steel and oil.
This is by no means a slowdown of the Chinese economic juggernaut,
but rather a nifty sidestep in the interests of further
long-term growth, while mollifying U.S. concerns.
The currencies that the yuan will be managed against have
not been announced by the People’s Bank of China, and little
can be made of the move until they are known. Also, China
intends to choose a currency every day that will act as
a reference currency, furthering its ability to manage the
market to its advantage.
The yuan value gain will only serve to entice prime brand
name companies for Chinese buyouts and escalate exports
to brand identifying American consumers. Until American
retailers stop facilitating the sale of cheaply made goods,
the value of the yuan will have little effect on our national
all, even if the yuan reaches a critical value, causing
prices of Chinese imports to rise, there is a whole world
of cheap labor for not only American but also Chinese companies
to exploit and profit from.