What do China's recent currency moves mean?

Posted by scapozzola on 04/19/2012

A few days ago, Reuters reported Beijing's announcement that it would widen the "size of its trading band against the dollar."  Specifically, the People's Bank of China said it would allow its currency, the yuan, to rise or fall 1% each day, compared with its previous 0.5% limit.

The move may be an attempt by Beijing to deflect ongoing criticism of its currency manipulation, noting that it comes just before the annual spring meeting of the International Monetary Fund (IMF) in Washington.

The Alliance for American Manufacturing (AAM) has been skeptical of previous currency moves by Beijing, and has pointed out how they frequently occur just before a high-level meeting or international conference.

As Howard Schneider reports in the Washington Post, though, U.S. Treasury Secretary Tim Geithner is optimistic about this latest announcement:

“The cumulative effect of what China has done is very significant and very promising,” Treasury Secretary Timothy F. Geithner said Wednesday in a talk at the Brookings Institution. “It signals a continued commitment by Chinese authorities to a broad change” in economic strategy.

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