After a decade of being pegged to the U.S. dollar, China’s yuan currency has now been revalued by 2.1%, pegged against what they call a “basket of currencies”.
The Chinese Central Bank did not say exactly what currencies are conained in this so-called basket, but the fact that they revalued is a weight off of the shoulders of the U.S. and the European Union.
The U.S. and EU have both been pressuring China to do this for quite a while, and it seems that they have finally gotten their wish. Before, the yuan was undervalued, which gave China an unfair advantage with their exports.
For the past 10 or so years, the yuan has been pegged to the dollar at about 8.3 per dollar. 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. According to AFX News Limited,
The dollar slumped to a low of 110.39 yen following the announcement from 112.40 before. It was lower against the euro, pound and Swiss franc.
Dealing floors were caught unawares by the news although speculation about a change in the Chinese forex system has been circulating for some time.
“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.
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.
