China has started making moves toward liberalizing its currency market, though not fast enough for some in the U.S. government who bizarrely complain that China keeps the yuan artificially low.
In December, China announced that it approved 13 foreign and domestic banks who would be market movers for the yuan. If it follows through, this will change China’s long-standing micromanagement of its currency designed to keep its value from rising against the yen, pound and dollar.
Having a number of banks that are market movers for the currency would, in theory, limit the ability of China to intervene to keep the value of the yuan down.
There are a lot of reasons that China should stop such intervention, but one of the odd things is watching U.S. officials complain about the cheap yuan. The argument goes that the cheap yuan is largely responsible for the U.S. trade deficit in which the United States imports far more goods from China than it exports to that nation.
But if China is crazy enough to essentially subsidize exports to the United States, why should the United States object? The United States get goods far cheaper, raising the effective buying powers of wages, and China gets cash it uses for the capital investment necessary to continue its economic growth.
Source:
China reforms its currency market. BBC, December 30, 2005.
The China Moves Toward Liberalizing Its Currency Market by Brian Carnell, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 License.