So China says they are (finally) going to revalue their currency and "gradually" move toward a floating exchange rate. NY Times article here.
I think that is good news. I really hope it happens soon.
I'm a bit outside my element here, but I don't see how they can do this gradually. Well, maybe if the keep the timing and size of the adjustment close to their vest they can keep some control. But then what's the point of revaluing?
Update: I should probably refrain from oblique posts. To the commenter who explains why China has pegged the Yuan to the dollar and why, in principle, they are revaluing: Yes I understand. My question had to do with the "gradually" part. The point is that once the market knows China is going to revalue or stop pegging, the market won't let China do it gradually. Thus, when China says they are going to do this gradually it's almost as if they are announcing nothing at all. This is something we need to see to believe.
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To your question, "what's the point of revaluing?" The artificial control of the renminbi's value against other currencies, particularly the US dollar and the Euro, is that in depressing its value, it makes Chinese exports cheaper than they would be "naturally," and makes imports more expensive. This is great for China, but not so for those who'd like to export TO China. The act of revaluation would appease unhappy trade partners, but yeah, it does remain to be seen whether it's a cosmetic or serious revaluation.
ReplyDeleteI think the Chinese will stall, stall, stall. There is only one reason they made this "promise." That is to forestall any pressure at the next G20.
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