China’s Regained Momentum Gives Yuan Room To Strengthen

On Tuesday, the yuan hit its highest level against the U.S. dollar since Beijing scrapped its currency peg in July 2005 and indeed its highest level since the official and market exchange rates were merged in 1993. Today, the U.S. Congress discuses China’s currency policy, one many American lawmakers believe that Beijing rigs. Congress is considering a bill proposing trade sanctions against countries that “misalign” currencies.

The yuan has now risen half a percentage point on the foreign exchanges over the past three trading days, a strengthening that will be seen as a friendly gesture in Beijing but a meaningless one in Washington given the dollar-yuan exchange rate’s lack of movement for months in the face of U.S. jawing (quietly on the part of the Obama administration, noisily in the legislature.)

Yet, away from the political rhetoric, as Prime Minister Wen Jiabao said at a World Economic Forum meeting in Tianjin, China’s economy is in “good shape, featuring fast growth, gradual structural improvement, rising employment and basic price stability.” August’s industrial production and retail figures suggested the economy has regained momentum and that the slowing that followed the monetary tightening earlier this year was relatively short lived. Pace the continuing risk of asset bubbles, as Wen touched on with the housing market, that gives policy makers in Beijing more scope to let the yuan appreciate, though they will continue to do so to their own timetable more than Washington’s.

This post was first published on China Bystander.

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