As China inches toward freeing its giant economy from state control, the government in Beijing has tightly held the nation's currency, the yuan, at a relatively weak exchange rate, giving a major advantage to Chinese exporters. But now a long-simmering controversy over that policy is heating up. Treasury Secretary John W. Snow suggested this week that Beijing may allow the yuan to rise, and he made it clear that he wants to see that happen. In doing so, he added his voice to those of American manufacturers, Japanese government officials and others who contend that the exchange rate for the yuan, which has been set at about 8.3 yuan per dollar since 1994, is artificially low.
The lower a country's currency is, the cheaper its products are on global markets -- and China's critics blame the yuan (also known as the renminbi) for fueling an export juggernaut that is driving down prices, squeezing profit margins and threatening jobs worldwide.Up to now Washington has quietly urged the Chinese to let market forces play a greater role in setting the value of the yuan, which, instead of fluctuating in open trading like the dollar and the euro, is carefully controlled by China's central bank, with restrictions on inflows and outflows of capital. Snow's remarks were the most high-profile exhortation to date by a Bush administration official for a change in policy."China has indicated . . . that they intend to create more flexibility on the renminbi, and they're to be encouraged in doing so," Snow told reporters during a trip to Pittsburgh on Monday. "We understand that the Chinese government is interested in moving toward market-based flexible exchange rates, and that's something we support."
Source: Washington Post
And China's official reply. Any bets that this won't be a political, and not a market 'correction' when it comes?
China on Tuesday sought to damp down speculation that it may revalue its currency in the near future by issuing a qualified correction to remarks by John Snow, US treasury secretary, who said this week that he saw more flexibility in the Chinese currency's exchange rate. An official at the People's Bank of China (PBoC), the central bank, said: "There is no change to the policy under which the renminbi exchange rate will be kept basically stable." Another official at the State Administration of Foreign Exchange, a body that reports to the central bank, said: "We will continue to maintain our stable exchange rate regime. This is our basic policy for now." Words such as "basically" and "for now" in Chinese are often used as clear qualifiers to the statement being made. However, there was no sense of whether the use of such words in this instance was intentional or merely a figure of speech.
Source: Financial Times