Big News on the yuan

September 28, 2006 at 7:02 pm (China, Economics)

From The New York Times

China Allows Rise in Currency Value

China’s government allowed the country’s currency to rise in value past the level of 7.9 to the dollar for the first time today, reaching another in a series of daily highs.

Though it has not said so publicly, the government evidently has decided to permit the currency, considered around the world to be artificially low in value, to appreciate much faster than before. Known as the yuan or renminbi, the Chinese currency has posted daily gains far more often than losses since last month, and has climbing 0.8 percent against the dollar so far in September, equivalent to an annual rate of 10 percent.

That compares with an annual pace of 2 percent to 2.5 percent during most of the months since China revalued the currency upward by 2.1 percent on July 21, 2005 (more).

 

And the news came with this news: Senators End Plans To Vote for Tariff On Chinese Goods. Apparently two sides made a compromise again.

Key senators dropped plans for a vote this week on legislation to impose a hefty tariff on Chinese-made goods because of Beijing’s currency policies, and will work to keep pressure on China through other means.

The decision by Sens. Charles Schumer (D., N.Y.) and Lindsey Graham, (R., S.C.), brings to a close a dispute in Congress about China’s currency-management practices, and avoids action the Bush administration had worried might weaken Washington’s standing as a free-trade leader.

The measure at issue would have slapped a 27.5% tariff on Chinese goods if Beijing didn’t take steps to loosen control of its currency, the yuan. The senators instead said they will coordinate with leaders of the Senate Finance Committee on new legislation designed to put trade pressure on China. Critics say Beijing keeps the yuan’s value artificially low to make Chinese goods relatively cheap in world markets, giving Chinese companies an unfair competitive edge.

Yesterday’s announcement came two days after Treasury Secretary Henry Paulson urged the lawmakers to give the Chinese more time to adopt economic changes, and after President Bush appealed personally to Mr. Graham to show flexibility.

“I’m convinced the administration is committed to a strategy that will require China to reform its currency manipulation practices,” Mr. Graham said.

A Treasury spokeswoman welcomed “the decision to not consider the bill” and said the department “looks forward to working hard on a range of issues through the strategic economic dialogue.(more)”

Also see The Yuan Dichotomy

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1 Comment

  1. Two Steps Forward, One Step Backward–China to Maintain `Stable’ Yuan « Random Blog said,

    […] A few days ago, China’s government allowed the yuan to break the level of 7.9 for the first time. When markets are upbeat on a further relax of the currency, China’ central bank interfered the optimism. Read the news from Bloomberg. […]

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