US may label China ‘currency manipulator’

Since China famously revalued the Yuan last summer, trade lobbyists and protectionists have continued to urge the Bush administration to pressure China on its exchange rate policy. In a sign that it may be bowing to popular demand, the US Treasury Department recently announced it may officially label China a ‘currency manipulator,’ in its biannual report to be released in April. The label would provide a basis for trade and

Interest rate differentials stabilize Yuan

Over the last few years, so-called ‘hot-money’ has poured into China, as investors sought to capitalize on a revaluation of the Chinese Yuan. In order to prevent these capital inflows from exerting severe upward pressure on the Yuan, China’s Central Bank was forced to turn around and buy USD. Since the US began raising interest rates, however, inflows of hot-money have declined, as the opportunity cost of waiting for a

China: all signs point to more flexible Yuan

This week witnessed several important developments in China’s efforts to eventually allow the Chinese Yuan to float freely. First, China announced it may soon allow interest rates to fluctuate in accordance with market forces, rather than rigidly controlling rates. In response, one of China’s largest banks announced the completion of China’s first ever interest rate swap agreement, which serves as a proxy for expectations surrounding future interest rates. These developments are important because higher interest rates would surely put strong upward pressure on the Yuan. Meanwhile, the Yuan has continued to appreciate in forex markets (albeit slowly), and is on pace to breakthrough 8.05 RMB/USD next week.
Read More: China launches RMB interest rate swap transaction