China Signals End to Yuan’s Two-Year Peg to Dollar
A week before the G20 summit commences China said it would allow amore flexible yuan and signaled that the two year old peg of yuan to the dollar would come to an end. The central bank said in a statement on their website that the decision was made after China’s economy improved. It never indicated a timeframe for the change.
People’s bank of China said that the recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. The bank stated that it would be desirable to move on with the reform of the currency in the exchange-rate regime and there should be an increase in the exchange-rate flexibility.
This initiative might be appreciated by the US president and other G20 leaders who had been blaming China for relying on an undervalued currency to promote Chinese exports.
This move also affirmed the treasury secretary Timothy F. Geithner’s policy of encouraging China to untie restrictions on its currency while resisting calls in Congress trade sanctions.
Geithner delayed a report to lawmakers in the last April assessing whether China or any other country is unfairly manipulating its exchange rate.
Global Economist Jim O’Neill said that it is another victory for Tim Geithner.
Geithner, in a statement, praised China’s decision and said that if the Chinese move is vigorously implemented it would contribute to a strong and balance global economic growth.
Officials had been found stating that Obama Administration had learnt of the announcement way before.
According to Mr. Eswar Prasad, former head of the China division at the international monetary fund said that as a result of the move China would ask the G20 leaders to focus on the major determinants of global imbalances. Especially the build up of debt in advanced economies.
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