EconoMonitor

Nouriel Roubini's Global EconoMonitor

Interpreting China’s FX Regime Change

Please read RGE’s view of the significance of China’s announcement of more currency flexibility in the following RGE STRATEGY VIEW (clients only): ‘Yuan Upmanship’: Interpreting China’s FX Regime Change.

Here is a report from Reuters: China Forex Move Could Thwart U.S. Hopes – Roubini

June 19 (Reuters) – China’s decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street’s most closely followed economists, said on Saturday.

China said on Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.

“This is the first significant signal in years of a change in Chinese currency policy,” Roubini, best known for having predicted the U.S. housing meltdown, told Reuters.

But it remains to be seen how China would put the new system into practice including the composition of a basket of currencies that Beijing will use as a reference point for the yuan — also known as the renminbi — and the base date for that basket, he said in an e-mail.

“Since they have not changed the previous range for the band — plus or minus 0.5 percent — most likely on Monday China will allow the renminbi vs U.S. dollar to move,” said Roubini.

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2 Responses to “Interpreting China’s FX Regime Change”

Anonymous ibid.June 27th, 2010 at 5:50 pm

If the Euro is near a bottom, and the dollar near a top, using a balanced basket of just the two currencies would prevent the yuan from strengthening against the dollar. The basket will be more complex, but one can predict that the result will be the same.