Monday, January 3, 2011

The Rise of The Chinese Yuan: Hits Record High; To Be Used More Widely In Global Trade

The Chinese Yuan rose to a record high against the US dollar on the last trading day of 2010. The yuan strengthened to a record high of 6.6227 per dollar on Friday, consolidating a 3% rise in the yuan's value in 2010, and a 24% increase since 2005 when the fixed exchange rate was eliminated.
In China this is seen as of symbolic value.

China Daily says the "unfolding role and expected rise of the yuan signify more substantial changes".
"China's rise as the world's second largest economy may be one of the most remarkable global events of the first decade of the 21st century. And though it cannot be said that China will replace the United States as the largest economy in another decade, the gradual rise of the yuan will be a key theme of the 2010s as Beijing shifts its dependence on exports and investments to domestic consumption for economic growth.

Domestically, the rise of the yuan sends a clear signal to the public that Chinese authorities are determined to fight inflation at all costs. Inflation in China rose to a 28-month high of 5.1 percent in November, fueling public worries that prices could rise further and erode their purchasing power.

Yet, by allowing the yuan to gain against the greenback for 11 consecutive days at the end of 2010, policymakers have overcome concerns that a higher-valued yuan could hurt Chinese exporters deeply and shown how important it is to curb inflation.

The revaluation of the yuan may have been outpaced by China's robust economic growth in the first decade of the century. But China's gradual approach to currency revaluation is well in line with the transformation of its growth model. China has been trying for years to boost domestic consumption and make it a key factor of economic growth, but progress in this regard was inadequate in the last decade to significantly tilt the foreign exchange rates in favor of Chinese consumers over exporters.

Hopefully, the case will be different in the new decade as the authorities have just mapped out a new five-year development plan to pursue sustainable growth, driven mainly by domestic consumption. Thus, it is likely that the yuan will be used more widely in cross-border trade".

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