Another entrant into currency wars? China halts the yuan appreciation

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Source: soberlook.com --- Friday, July 12, 2013
China's policy of gradual appreciation of its currency has been put on hold. Since the currency is not freely convertible, the authorities generally have a great deal of influence over the exchange rate. Typically when China's growth was deemed to be at risk, such as during bouts of Eurozone-driven financial stress, the renminbi would flat-line or even depreciate against the dollar. Given that the renminbi strength puts China's exporters at a disadvantage, particularly when Japan has been in a devaluation mode, the authorities are probably somewhat concerned. The fact that China's exports have stopped growing (see discussion ) is clearly not helping. Reuters : - An unexpected slump in exports in June marked the latest worrying sign of a slowdown in the world's second-biggest economy and raised the prospect that regulators may be forced to drag the yuan back down after a massive rally this year. Unfortunately for policymakers, while a weaker yuan might improve the price of Chinese goods sold abroad, it will not be the cure all for exporters. Other factors are driving up production costs at Chinese companies and undermining their competitiveness abroad. Still, economic reformers at the People's Bank of China (PBOC) will come under pressure to use brute-force exchange rate manipulation to stave off a potentially destabilizing round of factory layoffs. Liu Ligang, Greater China chief economist at ANZ bank in Hong Kong, said some sort ...

Source: http://soberlook.com/2013/07/another-entrant-into-currency-war-china.html

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