The appreciation of China’s currency against the US dollar will not affect current trade imbalances much, China’s Vice-Minister for Trade Jiang Yaoping said in remarks in Beijing 5 January. The Yuan’s current perceived weakness is cited by many in Washington as the cause of the whopping US trade deficit with China, estimated to be $190 billion in 2010. There are increasing calls in the USA to apply punitive measures to force China to appreciate its currency more quickly.
From China’s perspective, any appreciation of its currency against the US dollar represents a massive loss in the value of its foreign currency reserves, $2.6 trillion of which are in US currency, the largest of any country. The Yuan has appreciated 3.2 percent since June, according to the Wall Street Journal. China’s reserves are worth $83b less over that time period.
Officials from China and the USA have been meeting in Washington to prepare for Chinese President Hu Jintao’s state visit there starting 19 January.
Links to other sites: Al-Jazeera, Bloomberg
The US Federal Reserve said Wednesday 16 December that the US economy is improving, and in the hours that followed the US dollar gained against most other major currencies. It was up 0.9 percent against the euro, a three-month high. The Fed said it wants to keep interest rates “extremely low” but that figures on jobs and consumer spending are showing positive signs.
Links to other sites: Bloomberg, Financial Times, Time Magazine
European economic leaders have called for “discipline” in currency markets as the US dollar continues its slide against the Euro, contributing to pricier gold and more expensive oil. European Central Bank head Jean-Claude Trichet said that “excessive volatility was bad for economic development”. The Euro has gained 20 percent against the dollar since earlier this year, which threatens to undermine Europe’s economic recovery, by making its exports more expensive.
Oil is trading at $80 a barrel in New York, reflecting increased optimism about the state of the world economy, but also the weak dollar, and moved sharply beyond its $65 – 75 per barrel trading range it has maintained since July. Gold stayed above $1060 an ounce in trading 20 October and looks set to set new record prices, also on a weaker dollar, traders say. Bloomberg, Reuters, Wall Street Journal
The Japanese yen eased slightly on currency markets after hitting a high of JPY88.24 against the US dollar in New York trading 28 September. Japanese central bank governor Hirohisa Fujii said the bank may intervene to push the yen down. The yen declined against all major Asian currencies. Japan’s export-dependent economy favours a weaker yen. The yen has strengthened about 16 percent this year, making Japan’s exports more expensive. But the new Japanese government has said that a stronger yen favours Japanese consumers by making imports cheaper.
The four emerging major markets known as the BRIC nations are holding their first summit this week in Moscow to discuss common issues, one of which is the idea of an investment alternative to the US dollar. Brazil, Russia, India and China together account for 15 percent of the $60.7 trillion global economy, reports Reuters, which quotes Goldman Sachs as saying that in 20 years the four could “dwarf” the G7 economies and China’s economy could be larger than that of the US.
