Currency experts have noted that China should consider appreciating the yuan as a way to protect China’s economy from short-term foreign capital inflows. A researcher at the Chinese Academy of Social Sciences suggests a one-time appreciation of 10% against the dollar to reduce inflows of speculative capital. Zhang Xiaoquiang, deputy head of China’s top planning agency, has stated that the loose monetary policies in developed countries, a depreciating U.S. dollar and China’s economic recovery will put pressure on the yuan to appreciate. [More on the Chinese yuan.]
- WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSEArca: CYB)
Opponents of RMB revaluation insist that trade balances will still be the same in Asia. A greater exchange rate flexibility in China may restrain growth of exports in China, but it would force China to develop its domestic markets. However, the lower exports out of China will only induce other exporting Asian countries to pick up the slack left off by China.
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Read the disclaimer, Tom Lydon is a board member of Rydex Funds.
Max Chen contributed to this article.