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.
