Sunday, June 20, 2010

China to allow more flexibility for yuan

The  yuan has been effectively pegged to the dollar.

The yuan has been effectively pegged to the dollar. (Reuters)

China has indicated it will allow the yuan to rise against the dollar and other Western currencies.

The Chinese central bank announced it would make its exchange rate mechanism "more flexible", but it gave no details about the timing or extent of changes.

The yuan has been effectively pegged to the dollar, drawing criticism that China was protecting its exporters.

The statement from the central bank came a week before a meeting of world leaders in Canada, where Beijing's currency policy is expected to face criticism.

US president Barack Obama, US treasury secretary Tim Geithner and International Monetary Fund head Dominique Strauss-Kahn have welcomed China's announcement.

The US had been particularly critical of Beijing, accusing it of keeping its currency artificially weak.

That helps Chinese firms compete overseas and contributed to the large surplus in China's international trade.

China has kept the currency from rising by selling yuan for dollars and has built up massive foreign exchange reserves as a result.

The way China invested those reserves is seen by many economists as an important factor in the international financial crisis.

One leading Democratic party senator has described the announcement as vague and a typical Chinese response to pressure.


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