China Doubles Yuan Trading Band in First Widening Since 2007
While the World is focused on the European mess, the Chinese are doing “their own thing”. From Bloomberg.
China widened the yuan’s trading band for the first time since 2007, a move that may be intended to stem criticism from trading partners after expectations for gains in the currency diminished.
The increase to 1 percent from 0.5 percent will take effect April 16, the People’s Bank of Chinasaid on its website today. The previous broadening of the trading band, which is centered on a rate set daily by the central bank, was from 0.3 percent in May 2007.
The shift comes days before the International Monetary Fund and Group of 20 hold talks inWashington, forums used by finance chiefs to lobby China to let the yuan gain. Expectations for a stronger currency dwindled in the past six months as Premier Wen Jiabao cut the country’s economic growth target, Europe’s sovereign-debt crisis hurt exports, and China’s trade deficit in February swelled to the biggest since at least 1989.
Political pressure may be a “main factor” in the move, said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd., who added that this is a “political year” because of a looming U.S. presidential election.
While the yuan reached an 18-year high at 6.2884 per dollar on Feb. 10, President Barack Obama’s administration and U.S. lawmakers say the currency remains weak enough to give China, the world’s biggest exporter, an unfair advantage in trade.
“China will avoid significant appreciation or depreciation this year,” Lu Ting, an economist at Bank of America Corp. in Hong Kong, said after the announcement, citing reasons including an “uncertain” global economy.
Joseph Stiglitz take on the action;
“Opening up the band in conjunction with other actions they’ve taken may lead to a fall in the exchange rate rather than appreciation,” he said. “To the extent they do open up, money may leave and that will weaken their currency. A free market exchange rate may not go in the way the U.S. thinks it should.”
Full article here.