Yuan Devaluation May Spark Race to the Bottom

Telegraph
November 4, 2008

The central bank has shifted the central peg of its dollar band twice this week in a calculated move that suggests Beijing aims to offset the precipitous slide in Chinese manufacturing by trying to gain further export share abroad.

• A d v e r t i s e m e n t

The futures markets are pricing in a 6pc devaluation over the next year. “This is clearly a big shift in policy and we are now on alert,” said Simon Derrick, currency chief at the Bank of New York Mellon.

The move follows a Politburo speech by President Hu Jintao warning that China is “losing competitive edge in the world market”.

China has allowed a crawling 20pc revaluation over the past three years. Any reversal risks setting off conflict with the incoming team of President-Elect Barack Obama in Washington. Mr Obama called China a “currency manipulator” during the campaign, a term that carries penalties under US trade law.

Outgoing US Treasury Secretary Hank Paulson is viewed as a “friend of China”. He called for a stronger yuan this week before embarking on a visit to Beijing, but the plea was couched in friendly terms. This soft-peddling may soon change.

Read article

  Print this page.

Comment Rules

Comments are closed.