China: Loosening its hold on the yuan
China announced that it would let the yuan rise “gradually” against other major world currencies, bowing to international protests that it was keeping its currency and export prices artificially low, said Elaine Kurtenbach in the Associated Press. A yuan that no longer trades at a fixed rate of 6.83 to the dollar should help China curtail inflation, stimulate domestic demand, “and reduce the country’s reliance on exports as a key driver for growth.” The move should also blunt criticism of its currency policies at the meeting of the G20 industrialized nations in Toronto this weekend. Bets placed by currency traders in the futures markets indicate that they expect the yuan to appreciate about 2.3 percent against the dollar by year-end.
A stronger yuan is good news for multinational companies aiming to “target China’s consumers, while complicating life for those that rely on low-cost exports from the world’s factory floor,” said Jason Dean in The Wall Street Journal. The change won’t be immediately apparent, but as Chinese citizens gain purchasing power, U.S.-based exporters such as Coca-Cola, Motorola, and General Motors should benefit. A stronger yuan also helps non-exporting U.S. companies, which will face less competition from Chinese imports.
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