April 16th, 2012
07:52 AM GMT
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Hong Kong (CNN) – Over the weekend, China announced it was doubling the trading band of the yuan against the U.S. dollar.

The move was widely lauded as a step toward liberalizing the Chinese exchange rate and moving the yuan toward an internationally traded currency like the U.S. dollar, yen and euro.

“This underlines China's commitment to rebalance its economy toward domestic consumption and allow market forces to play a greater role in determining the level of the exchange rate,” said Christine Lagarde, managing director of the International Monetary Fund, in a statement.

Beijing will still tightly control the movements of the currency, but now will allow the yuan to gain or lose as much as 1% in value each day – up from 0.5%. China began its crawling peg against the U.S. dollar in 2005, and the value of the yuan – or RMB – has risen by about 30% over the past seven years.

Others say Beijing’s weekend announcement is a canny political move aimed to undercut election year rhetoric against China. U.S. politicians have found rare bipartisan agreement in complaints against Beijing for not allowing market forces to control the rise and fall of the yuan – giving Chinese manufacturers an unfair advantage by keeping the currency undervalued. The political tensions surrounding currency rose when China stopped allowing its currency to rise in the wake of the 2008 financial crisis.

“It is ploy that would no doubt bring a smile to the face of Sun Tzu and Machiavelli,” wrote Marc Chandler, chief currency strategist at Brow Brothers Harriman, in a article for Seeking Alpha. “China is giving up something that it is not really using. Specifically, the current band itself has rarely if ever been utilized.

“It is no coincidence that the move is happening on the eve of the IMF/G20 meeting,” added Chandler, referring to the meetings set this week with the finance ministers and central bankers from the world’s top economies.

The U.S. isn’t alone in its recent criticism of Beijing’s tight control on yuan exchange rates. Fellow BRIC member Brazil has been vocal in its exchange rate concerns. Brazilian Finance Minister Guido Mantega coined the term “currency war” in 2010, hitting out at the monetary policies of both China and the U.S. for squeezing up the value of the real. Brazil’s currency woes continue, as Brazilian President Dilma Roussef pressed U.S. President Barack Obama for greater cooperation on global currency issues at a summit earlier this month.

For investors, Beijing’s move for a wider float range means less bets on the yuan trading in only one direction – up. “If they’re buying yuan with intention of speculating or in anticipation of the RMB continuously gaining value I’d say it’s a signal they should rethink their strategy,” Daniel Hui, senior FX strategist for HSBC, told CNN’s Ramy Inocencio.

“Chinese officials have indicated a fundamental shift behind the currency in which they believe the currency is now near fair valuation or near what they call equilibrium,” Hui said. “And that indicates they believe the currency has finished the large part of its adjustment of its strengthening against currencies in the world.”

HSBC is projecting “minimal appreciation – less than 2%” in yuan appreciation against the dollar, Hui said.

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Filed under: AsiaBusinessChina

soundoff (13 Responses)
  1. Albuequerque, Turkey

    So their planned economy is working out for them? So they decide to let the corporate parasites start feasting on thier economy? Maybe itll give the U.S more time to get back up on its feet.

    April 16, 2012 at 9:35 am |

    doubling the trading band of the
    yuan against the U.S. dollar.

    April 16, 2012 at 11:09 am |
  3. Paul

    The only ones always talking in terms of WARs are Americans.

    War on drugs (how is that even possible)

    War over womens votes

    War on Terror

    War on Obesity

    Trade Wars

    War this...

    War that...

    April 16, 2012 at 12:41 pm |
  4. Kyle H. Davis

    @Albuequerque, Turkey – Obviously it is not working for them... stop simply viewing colorful images on the TV screen and do some investigation. It has ever increasing interest rates, CPI, ever decreasing growth, housing market ready to collapse (literally), massive income and class gap, no describable infrastructure development over the past... (I was going to say 30+ years, but it has been over the past 70+ years), ever growing dependency on foreign trade (which keeps their domestic manufacturing development below anyone they are trading with).

    What you see going on in China that appears to be development, is nothing more than the increase of personal wealth leading to growth in luxury imports... $100,000 vehicles that share the road with donkey carts.

    You DON'T see any development in the standard of living (outside of what the super rich have created inside their personal bubble they create for themselves inside their apartments) – You don't see any development in healthcare, education, utilities, environmental or otherwise.

    A decade living here and the only development I see is what I have explained to you: a "Beverly Hillbillies" form of development.

    April 16, 2012 at 1:46 pm |
  5. Nicole Lemmimg

    I like theme.

    April 16, 2012 at 2:08 pm |
  6. That'snotTrue:[

    @ Kyle H. Davis

    Dear troll please stop spamming the China news pages with lies, you never have anything positive to say... and I doubt you ever been to China with all the sinophobia things that you say/believe about it! By the way, are you also Shadowsnw?

    April 16, 2012 at 3:11 pm |
  7. Administrator

    Reblogged this on Rhodes Holdings LLC and commented:
    I don't believe that we fully understand all the controls that China has in place. With as much currency reserves (U.S. dollars) as they have, this shouldn't really impress anyone. If, as this article says, this is meant to cut election year rhetoric, I think the Chinese leaders did well.

    April 16, 2012 at 3:35 pm |
  8. hachimada

    What ever Chinese do, it will never end the currency war debate, as US politicians need this topic to impress the voters.

    April 16, 2012 at 3:47 pm |
  9. Thomas A

    @Kyle H. Davis, what are you talking about, of course China has developed!! In fact, it is the next Asian nation on track to becoming a fully developed country within the next few decades! Consider this: while private ownership of vehicles was only allowed in 1994, today China is the world's largest car market with something like 16 million cars sold last year and probably a few million more this year. Expressways and high speed rail only really started to be built in the past 10-20 years but now they are both transforming the Chinese landscape! 10-15 years ago most Chinese with cars had personal drivers, but now they are mostly driving themselves (except for the super rich, who can easily pay for a personal driver or two!) 15 years ago Chinese incomes were much lower than those of Thailand, but these days Chinese incomes are higher and growing fast. 15 years ago Thailand looked about the same as now, with the same traffic jams in Bangkok as you have now, however, in China traffic jams were uncommon 15 years ago, but very common now.

    Sure, donkey carts still exist, but I think you are referring to the outskirts of Kunming or Pu'er city in Yunnan province, certainly not Shanghai, which looks as glamerous and modern as its counterparts in the developed world (no wait, Shanghai is even more modern and glamerous than the developed world!)

    April 16, 2012 at 4:41 pm |
  10. Will

    Paul said "The only ones always talking in terms of WARs is Americans."

    Well Paul, I see reading isn't your strong suit. Here's a quote from the article:

    "Brazilian Finance Minister Guido Mantega coined the term “currency war” in 2010"

    "Brazilian Finance Minister Guido Mantega"

    "Brazilian Finance Minister"

    "BRAZILIAN Finance Minister"


    Do you see the key word there you anti-American xenophobic racist phuq?

    April 17, 2012 at 6:41 pm |
  11. craig

    Wow! Well Will, note that CNN IS American! Also, the part about Brazil is near the end, where it begins "The US is not alone..." and then drags in Brazil. Brazil? Come on, gotta do better than that... This is not the first time I heard use of "currency war" in the US media. It's also true that most wars in the World today are waged by Americans, and most innocent lives lost are due to 'collateral damage' resulting from American bombs. So, I would say Paul has a point. Maybe you can blame the first use of the term on Brazil or whatever, but the fact is the term is adopted by the US media. The media adopts whatever term suits the national psyche. After all, you don't see them using the term "comrades" now do you? It's a free country and people can choose to represent things how they want. America likes wars. That's just the truth. If anyone is fanatical here, I would say it's Willy Man... Should take some chill pills little guy.

    April 18, 2012 at 10:58 am |
  12. Garf Fisher

    Since China does not have much in the way of oil, and it is a nuclear power, the only war the U.S. can have with them is a currency war? Here is China bombing the world with cheap and cheerful products, and the best we can do is retaliate with the money. It sounds more like trade, but I could be wrong.

    April 19, 2012 at 2:59 pm |
  13. icon designs

    What nice idea

    September 22, 2012 at 3:00 am |

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