Global Fastener News

China Uncouples Yuan From U.S. Dollar

July 28
00:00 2005

Jason Sandefur

After keeping the yuan fixed near 8.28 per U.S. dollar since 1996, government officials in China announced the country”s currency was being adjusted to a value of 8.11 and tying it to a basket of currencies of China”s main trading partners. The decision could make Chinese exports more expensive and make foreign assets cheaper for China to buy.
While some U.S. officials lauded the move, it remains unclear how much of an effect the currency revaluation will have on the fastener producers and other industries hit hard by Chinese exports.
In recent years some economists and government officials speaking to fastener executives have called for China to “float” its currency.
However, during a Fastener Week seminar in Rosemont, IL, speaker Eamon McKinney of China Business Network downplayed the significance of floating the yuan.
McKinney said he did not expect the yuan to be tradable in his lifetime like the U.S. dollar.
“China accounts for only 10% of U.S. imports,” McKinney explained. “Even if the yuan value was boosted by 20%, it would only improve U.S. import deficits by two percent.”
According to McKinney, the notable trade imbalance between the two countries is deepened by the U.S. dollar”s value being “too low.”
Others, however, praised the decision, even while labeling it “modest.”
“The most important thing is the change, not how much it changed,” Li Yang, a senior economist with the Chinese Academy of Social Sciences in Beijing, told Reuters News Agency.
According to Reuters, China has had to buy up huge quantities of dollars to keep the yuan fixed. Its foreign exchange reserves have swelled to $711 billion, representing the world”s largest stockpile after Japan”s. \ �2005 FastenerNews.com

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