Yuan Float Welcomed

China removes a two-year currency peg to the U.S. dollar.
2010-06-21
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HONG KONG—China’s decision to allow more flexibility for the yuan has met with praise from economists, even as Beijing seeks to downplay the U.S. and European pressure that preceded the move.

The People’s Bank of China made the announcement Saturday, ending a two-year currency peg to the U.S. dollar adopted during the global financial crisis.

Peking University economist Xia Yeliang welcomed the Chinese central bank’s move.

“China should have taken earlier initiatives to allow the yuan to rise. Nevertheless the current move was carried out under international pressure, especially that from the U.S. Congress. But no matter how late it might be, the action itself is positive,” Xia said.

But he was cautious on the future of the exchange rate.

“I don’t think China will let the yuan value rise drastically this year. My anticipation of the increase will be around three percent, while a five percent increase is probably impossible. I wish the rising scale could be larger though,” Xia added.

Global markets and media reacted swiftly to the announcement, which analysts noted preceded the G-20 summit in Toronto on June 26-27.

The Wall Street Journal reported that the yuan was quoted at 6.8015 to the dollar in China's over-the-counter market Monday, up strongly from its opening level of 6.8261 and its close on Friday at 6.8262.

The 6.8015 level was the yuan's strongest against the dollar since the 1980s.

Conflicting messages

Chinese economic officials quickly worked to contest the idea that Beijing had been pressured into adjusting the yuan by their Western counterparts.

According to one journalist in Beijing who asked not to be named, after the Saturday announcement, China’s censors Sunday reiterated a warning regarding sensitive news: All media outlets must use the unified news release from the official Xinhua News Agency.

However, in the past several days, China’s official media gave out conflicting information.

On Friday, Vice Finance Minister Zhu Guangyao told reporters that adjusting the yuan exchange rate is not the concern of any other countries.

The following day, China’s central bank signaled that it would deliver on pledges of greater yuan flexibility.

On Sunday, a spokesman from the same bank ruled out a one-off revaluation of the Chinese currency.

Then, on Monday, the official People’s Daily said exchange rate reform in China wouldn't necessarily guarantee that the value of the yuan would increase.

Dissent on policy

“These conflicting news reports reflect the contradictory minds of the Chinese leadership. On one hand, they can no longer sustain the pressure for a higher yuan; but on the other hand, they don’t want to be seen as overly bent to a Western request,” Xia said.

“In fact, letting the yuan increase in value is not only good for the U.S. or the European Union, but good for China itself."

Beijing-based economist Cao Siyuan agreed.

“I welcome a higher yuan. The currency going under its actual value is ultimately harmful for China’s exports. If we obtain benefits from an abnormally low exchange rate, our competitive power is not real,” Cao said.

Original reporting by Ding Xiao for RFA’s Mandarin service. Mandarin service director: Jennifer Chou. Translated by Ping Chen. Written for the Web in English by Joshua Lipes. Edited by Sarah Jackson-Han.

CH. 1: MANDARIN | CANTONESE

CH. 2: VIETNAMESE | BURMESE | KOREAN

CH. 3: KHMER | LAO | UYGHUR

CH. 4: TIBETAN

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