The Yuan

Posted on April 16, 2012 at 7:04 PM

As mentioned in the Wall Street Journal today, China has taken new steps to loosen restrictions on the range in which the yuan trades against the US dollar.  The Chinese Central Bank still maintains a relatively tight grip on the yuan by setting a daily "parity" rate for trading the yuan against the US dollar.  China until today had allowed the yuan in daily trading to increase or decrease from the party rate by no more than .5%.  The changes which went into effect today allow the yuan to fluctuate up to 1% from the parity rate.
Analyst are already staking their bets on how today's developments fit into the "Washington vs Beijing" debate over whether the yuan is undervalued.  That said, stepping aside from this debate for just a moment, one wonders whether this development represents something different – China's willingness loosen yuan trading restrictions when convinced that doing so will not hurt their domestic economy, and Washington's willingness to push hard, while realizing that an orderly appreciation of the yuan is to some extent both realistic and, probably, in everyone's interest.  For what it's worth, we suspect that reforming the yuan in some sort of orderly, consensus-oriented manner is right, for now the best way to continue to proceed.

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