'Best Guess': Yuan Will Rise About 5% A Year

Aug. 29, 2005
After 11 years of being rigidly tied to the U.S. dollar, the value of China's currency -- the yuan -- is being allowed to float, albeit a carefully controlled float. The People's Bank of China will be under pressure to take several additional steps to ...

After 11 years of being rigidly tied to the U.S. dollar, the value of China's currency -- the yuan -- is being allowed to float, albeit a carefully controlled float. The People's Bank of China will be under pressure to take several additional steps to revalue the currency, such as this summer's 2.1% increase, believes Global Insight. But such sizable and dramatic steps are not likely to be forthcoming, since the People's Bank wants to deter speculators and protect Chinese exporters against a loss of competitiveness, states the Waltham, Mass.-based economic forecasting firm.

Rather, its "best guess" is that the Chinese currency will be allowed to appreciate gradually at a rate of about 5% a year for the next several years. "This is large enough to relieve both the political and economic pressures on Beijing, but not so large as to create the dislocations that [the People's Bank] fears," says Global Insight.

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