China bows to G20 pressure and allows further yuan flexibility

| June 28, 2010 | 0 Comments
China bows to G20 pressure and allows further yuan flexibility

China faced renewed pressure at this weekend’s G20 summit Toronto, Canada, after a draft said: “Emerging surplus economies will undertake reforms tailored to country circumstances to… enhance rate flexibility.”

Beijing has previously ruled out a one-off appreciation of its currency and has previously said keeping the yuan stable is “an important contribution” to global recovery.

China has already faced pressure from the US to remove its currency peg, in order for it to be allowed to rise against the US dollar.

US legislators and trade groups have since argued that the yuan is kept up to 40% below what its value should be against the US dollar.

The US has also expressed dissatisfaction that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.

Today, however, the People’s Bank of China set the strongest yuan exchange rate in years - at 6.7890 to the dollar, slightly stronger than Friday’s 6.7896.

It was the strongest level policymakers have set since China removed the currency peg in July 2005, when the yuan was allowed to rise in value by about one fifth.

Following the summit, US President Barack Obama said he expected China to honour its pledge, made over a week ago, to allow yuan flexibility.

“My expectation is that they’re going to be serious about the policy that they themselves have announced,” Mr Obama said yesterday.

Earlier this month, the World Bank joined other commentators by saying that the yuan, which is also referred to as the renminbi, should be strengthened against other international currencies, in order to ease inflation and prevent the economy from overheating.

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