After pressure from the United States and the European Union, China has revalued its currency, the yuan by 2.1%, so it is not pegged to the U.S. dollar anymore.
The yuan was pegged against the dollar for a decade, and the U.S. saw this as an unfair advantage for China in the international trade industry.
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”.
The Chinese Central Bank says that the yuan is pegged to a “basket of currencies” now, instead of just one – the dollar. The bank did not make clear what currencies it would be pegged to.
“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. 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.
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.
