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
revaluation has increased. As a result, representatives from China’s Central Bank were excited to announce that managing the de-facto Yuan peg has become easier, much to the dismay of Western policy-makers. Bloomberg News reports:

The U.S. Treasury refrained from naming China a currency manipulator in a twice-yearly review of trading partners’ exchange-rate policies released on Nov. 28. The next report is due April 15.

Read More: U.S. Interest Gap Keeps Yuan Stable, Central Banker Says