China Pre-empts Critics with Currency Pledge

(Globe & Mail)

Surprise vow to let yuan gradually rise designed to ease increasing pressure from world leaders ahead of G20 summit

China has moved to fend off a barrage of expected criticism against its economic policies from world leaders at this week’s G20 summit in Toronto by issuing a surprise pledge to let its currency gradually rise against the U.S. dollar.

However, despite the promise, the yuan opened Monday at exactly the same rate that it has spent every day since July, 2008, at about 6.83 to the U.S. dollar. The People’s Bank of China said on its website Sunday that despite the new policy, the value of the yuan would remain “basically stable.”

Markets in Japan and South Korea, however, were up in early trading, reflecting the optimism felt by foreign manufacturers who saw the yuan’s artificially low value as giving Chinese exporters an unfair advantage.

The unexpected promise on the weekend from China’s central bank to allow for a gradual increase in the value of the yuan will serve to defuse mounting political tensions over China’s long-standing policy of keeping its currency artificially low to boost the economic performance of its key export sector. Read more here.

Related:
• Yuan appreciation not guaranteed (Financial Post)
• China Unshackles Yuan Ahead of G20 (Reuters)