U.S. Treasury Secretary Henry Paulson is going to visit China again in order to motivate the government to increase the pace of the change in which yuan would appreciate against U.S. dollar and other world currencies.
Recently China urged their banks to use the advantage of the globally weak dollar to buy the American assets using a cheaper dollar bought for a stronger yuan. That caused not only an increase of the foreign capital inflow into United States, but also devalued yuan against dollar, because it created a strong offer of yuan along with the demand for dollars.
As the weak yuan is helping Chinese exporters to improve their sales overseas and win large market shares from the U.S. and European competitors, so is this weak currency issue badly affecting the consumer prices growth in China. CPI growth for October showed to be fastest in the decade – 6.5%. Increased inflation growth is, without a doubt, the problem which is going to be treated by the Chinese government.
Henry Paulson is determined to use the “inflation factor” as his main argument for the stronger yuan. Not only he is going to prove that China needs to set its course to a steady national currency appreciation, but also convince them that only fast and immediate yuan revaluation can help both inflation and the China’s trade partners.
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