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What is going on with the yuan?



June 24, 2010 – Comments (0)

This week's Global View column takes a look at The People's Bank's recent pronouncement to start unpegging the yuan from the dollar:

By announcing plans to reform this fixed-rate regime, enhance exchange rate flexibility, and "enable the market to play a fundamental role in resource allocation," China is finally signaling a willingness to allow supply and demand to determine the value of its money. Given China's trade surplus and all of the investment dollars that are flowing into China, the consensus is that China's currency should appreciate quite a bit -- with some economists suggesting that a natural exchange rate is closer to 4 or 5 RMB to the dollar rather than the 6.8 RMB to the dollar rate that exists today.

Although it's unlikely that we will see a rapid 50% rise in the value in the RMB (for reasons I'll talk about below), this move does matter for both China and for the world.

Read it all here.

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