WASHINGTON (Reuters) – President Barack Obama on Saturday welcomed China's announcement that it would resume exchange rate reform to make its yuan currency more flexible.
"China's decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy," Obama said in a statement.
Beijing said earlier that in light of the gradual recovery in the global economy, and as the recovery and upturn in the Chinese economy has become more solid, it wanted to proceed with currency reform and to make the yuan more flexible.
The decision came a day after Obama gave China a clear prod by extolling the benefits of market-determined exchange rates in a letter to G20 leaders before their summit in Canada on June 26-27.
The Group of 20 top industrial powers agreed at their last gathering in Pittsburgh to strengthen the global economy by rebalancing demand. This was a clear reference to countries like China, which critics say boost exports by manipulating their exchange rate to keep them artificially low.
"I look forward to discussing these and other issues at the G20 Summit in Toronto next weekend," Obama said.
James Fallows
Yesterday
I mentioned the mounting concern I'd been hearing in China that despite everything -- despite a "decent interval" of minimal public criticism from the US including deferral of a "currency manipulator" judgment from the Treasury Department, despite the recovery of China's economy and its exports, despite faltering recovery efforts elsewhere -- the Chinese government might end up stonewalling and refuse to make even the tiniest gesture toward letting its currency, the RMB, start rising in value again.
The RMB had been pegged at around 8 to the dollar until July, 2005; began a "managed float" to about 6.8 to the dollar until July, 2008; and has been frozen again at around 6.8 ever since, as part of a Chinese government effort to preserve its export industries when the financial crisis made foreign demand collapse, especially in the US. The assumed deadline for the Chinese government to do something to show movement on this front has been the G20 meetings a week from now in Canada.
At 7am this morning US East Coast time, the People's Bank of China published an announcement
on its website that appears to signal the change everyone has been expecting. Chinese version
here, with a posting date two minutes earlier. It begins:
Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility
In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.
We'll see next week, and in months to come, what exactly this will mean. Early analysis
here. But to yesterday's question -- might they really decide to stonewall? and make their intransigence the center of the G20 meetings? -- the answer appears to be No. Which matters. More later.
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