The decision by China’s central bank to let the yuan trade more flexibly has raised eyebrows, and it is certainly not going to satisfy hawks in the US Congress who accuse the mainland of artificially keeping its currency low.
For US lawmakers, both Democratic and Republican, the value of the yuan should be higher by as much 40 per cent over its current peg, which is now allowed to trade 0.5 percent either side of the daily fixing. Today, China’s central bank fixed the reference rate at 6.7896 per a greenback,
Initially, China’s decision to let its currency move freely was met with euphoria in the markets, with the yuan reaching its highest peak in two years. In the following days however, Chinese state-owned banks bought up massive amounts of dollars to correct the situation. In the end, the new “flexibility” is very much like the old one, designed more to silence US politicians than to change the situation. In fact, many in Congress are now clamouring for actions against Chinese imports.
But china sees things differently. “About the topics for discussion at the G20 Summit, never has any country's currency been singled out in the agenda of the previous three G20 summits,” said Foreign Ministry Spokesperson Qin Gang. Instead, “The upcoming summit is held in the context of a vulnerable and imbalanced recovery of the world economy,” he added. Thus, “The immediate priority for the G20 member states is to discuss how to strengthen communication and cooperation to safeguard and promote the momentum of economic recovery so as to contribute to a strong, sustainable and balanced development of world economy.”
“I don’t have high expectations of the G20,” said Prof Niu Xinchun, deputy director of the Institute of American Studies, China Institutes of Contemporary International Relation, told the Global Times.
“This year sees the fourth G20 summit. During the last three summits, it was much easier for countries to reach agreements, such as implementing stimulus packages, because everybody was trapped in the crisis, and they were sitting on the same sinking boat. But now, everyone has recovered, although to different degrees, and begun to make selfish calculations again,” he added.
President Barack Obama too believes that it is too soon to say whether China’s decision to allow more flexibility for its currency will be sufficient to rebalance the world economy. However, “The initial signs were positive but it’s too early to tell,” he added. In his view, currency trends are not measured in days but in years.