Thursday, April 8, 2010

Will China Let the Yuan Rise?

From the NY Times:

The Chinese government is set to announce a revision of its currency policy in the coming days that will allow greater variation in the value of its currency combined with a small but immediate jump in its value against the dollar, people with knowledge of the consensus emerging in Beijing said Thursday.

While there remains a possibility of a last-minute glitch that could delay the announcement, China’s central bank appears to have prevailed with its arguments within the Chinese leadership for a stronger but more flexible currency, these people said. They insisted on anonymity because of the sensitivity of the issue in Beijing.

The model for the upcoming shift in currency policy is China’s move in 2005, when the leadership allowed the renminbi to jump 2 percent overnight against the dollar and then trade in a wider daily range, but with a trend toward further strengthening against the dollar. For the upcoming announcement, however, China is likely to emphasize that the value of the renminbi can fall as well as rise on any given day, so as to discourage a flood of speculative investment into China betting on rapid further appreciation, they said.

The emerging consensus within the Chinese leadership comes as Treasury Secretary Timothy F. Geithner held meetings on Thursday with senior Hong Kong officials and prepared to fly on Thursday evening to Beijing for a meeting with Vice Premier Wang Qishan.

This would be a very encouraging and important development, if true.