Thursday, June 30, 2005

Will China Float the Yuan?

In Graziadio Business Report

The yuan floats! On Friday, April 29, 2005, foreign exchange markets were rocked as the Chinese currency -- the yuan -- appreciated in value against the dollar. The climb took place over a 20-minute period and the movement was not spectacular. Instead of 8.276 yuan needed to buy a dollar, only 8.270 was needed -- an appreciation of 0.07 percent! Such a small movement in the exchange rate between two currencies would not normally be noticed, and certainly would not cause so much discussion and reaction. The dollar immediately fell in value against the euro and yen, and the price of gold increased. It should be noted that market watchers are not even certain what caused the appreciation. Was it a test of China’s ability to control a rising yuan, or a mistake by the Chinese central bank?

Read this fascinating paper written by two professors on whether China will float the Yuan.

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