Chinese yuan gained against dollar during today’s trading session in Shanghai, reaching 7.425 yuan/dollar rate. This appreciation of yuan was caused mainly by the falling U.S. dollar against euro, pound and other currencies.
While free market laws try to pull up yuan against dollar and other world currencies, government of China does a lot of things to stop yuan from rising at the pace it could. Buying dollars on the foreign currency exchange market holds the yuan/dollar level; similar manipulations with other countries’ currencies (but in lesser volumes) goes on to prevent yuan’s growth. China wants to protect its exporters by holding their production (nominated in a quite cheap yuan) low and allow them to hold lower prices on this production.
But next Tuesday (November, 27) a delegation of the European Union financial system leaders, including ECB president Jean-Claude Trichet, will be visiting Beijing. Their mission is to make China to allow yuan a more free market float. One of the main arguments Trichet and Co will have is the possible trade limitations against Chinese goods. Most probably China will listen to their European colleagues, but the yuan’s appreciation won’t be as strong as E.U. and U.S. would like. People’s Bank of China will just add a moderate increase in yuan’s revaluation pace to partly satisfy their trade partners but at the same time to not cause any problems for their economy growth.
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