Currencies: China is clandestinely widening the yuan-dollar float

Posted January 2, 2008

"Currency experts are now expecting a gradual 10% increase of the yuan over the dollar throughout 2008." — J. Christoph Amberger

by J. Christoph Amberger

Baltimore — (TFN): China may be in the process of clandestinely floating the yuan within a far wider margin than last year. Within the last couple of days — which were characterized by lacking trader attention due to the holidays — the yuan has gained dramatically against the greenback.

While the dollar bought 7.3041 yuan last Friday, it rang up only 7.2948 yuan today. Within the past two months, the yuan has gained 2.3% against the dollar — compared to its not quite 7% gain over the entire year 2007.

The margin of allowable fluctuation against the dollar is set by the Bank of China. Based on the recent signals from Beijing, currency experts are now expecting a gradual 10% increase of the yuan over the dollar throughout 2008, bringing the dollar into a range of 6.66 yuan.

This is in part aimed at cooling China's increasing rate of inflation, as well as a half-hearted attempt at slowing economic growth.

In the medium term, the development will positively affect the US current accounts deficit, by making US exports marginally cheaper vs. Chinese exports.

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