To ease pressure from the United States and European Union, China revalued its currency, the yuan by 2.1%, but will more than likely be pressured to raise it more.
The U.S. saw China as having an unfair advantage in international trade as it was pegged against the dollar for about 11 years. Now it is pegged to a “basket of currencies”.
The Chinese Central Bank says, however, that the revaluing of the yuan will do little to repair this imbalance. People’s Bank of China Governor Zhou Xiaochuan says that the reform will have “little influence on U.S. deficits”.
This is where more pressure will undoubtedly come into play. “In the short term, pressure for yuan appreciation will increase further. The change to the currency regime and the small appreciation of the yuan cannot solve China’s economic imbalances and the problems of the economy,” said Yu Yongding, a member of the People’s Bank of China’s monetary policy committee.
“The People’s Bank of China will make adjustment of the RMB exchange rate band when necessary according to market development as well as the economic and financial situation,” said the central bank.
The yen rose the most that it has in 2 and a half years against the dollar, while rising against the sixteen most heavily traded currencies in the world.
There has been much trade tension between China and the U.S. mainly over textiles. The two countries did, however, recently sign agreements regarding other areas such as agriculture, bio-technology, and banking.
The U.S. has been pressuring China to put limits on its textile exports, due to claims that U.S. manufacturing jobs suffer because of them. In June, China reached an agreement with the EU over similar issues and placed limits on 10 types of its textile exports. The U.S. has been considering placing tariffs on imports from China, though Fed Chairman Alan Greenspan has advised against it.
Chris is a staff writer for murdok. Visit murdok for the latest ebusiness news.
