Yuan Rises a Tad

The Yuan traded at a new high, because China raised their interest rates again.

China’s yuan traded near its highest level in 17 years after the central bank raised interest rates for the third time since mid-October, spurring speculation policy makers will permit more gains to counter inflation.

The benchmark one-year lending rate was raised to 6.06 percent from 5.81 percent from today, the People’s Bank of China said yesterday. The one-year deposit rate was increased to 3 percent from 2.75 percent. The monetary authority set the reference rate for yuan trading at 6.5850 per dollar, the strongest level since a dollar peg was ended in July 2005.

Bloomberg's claim the dollar peg ended is pretty much a joke. China is not floating their currency, that's just a re-peg, allowed to fluctuate within a small limit.

From Xinhuanet:

On China's foreign exchange spot market, the yuan can rise or fall 0.5 percent from the central parity rate each trading day.

The central parity rate of the RMB against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day.

This will help reduce imports from China, Asia a tad, but every bit helps.

Amazingly enough, many in the press do not realize other countries are pegged to the Yuan. Economist Dean Baker:

The WSJ reported that the Chinese yuan rose sharply against the dollar today and that this increase led to sharp rises in other Asian currencies as well. Put this one in the "who could have known?" category.

Many of the economists cited by major news outlets are undoubtedly surprised by this sequence of events. They have minimized the importance of a rise in the yuan to the U.S. trade deficit by insisting that the United States would simple turn to other producers as a source of imports.

Those who understand the economy pointed out that other Asian currencies tend to follow the yuan, so that a rise in the value of the yuan would likely also lead to a rise in the value of other currencies against the dollar. This means that the rise in the yuan is likely to reduce U.S. imports from China and other countries, thereby reducing imports and creating jobs.

Dr. Baker, you're messing with that corporate party line that somehow China's currency manipulation and confrontation thereof doesn't matter. Of course they won't acknowledge the influence of China's actions, the 2nd largest global economy, in the Asian region.


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