Word: yuan
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China revalued its currency last week, allowing it to rise 2.1% against the U.S. dollar. No longer will the yuan exactly track the buck, as it has for nearly a decade--which has kept the yuan's value artificially low and made Chinese goods cheap in the U.S. Here's what it all means...
...trade surplus with the U.S., which has Congress threatening tariffs on Chinese imports. But economics played a role too. China's off-the-charts growth would naturally lift its currency in a free market, which China is trying to achieve. This is a first step toward a free-floating yuan--possibly by the 2008 Olympics in Beijing...
...strong yuan will make goods produced in China more expensive. So it will hurt companies like Target, which buys a lot of its goods there and may have to raise prices for the U.S. consumer. But it will help U.S.-based exporters by making their goods more affordable abroad. A stronger yuan should help bring China and U.S. trade into better balance and soothe tensions...
...goes as planned. But a strong yuan may stoke inflation in the U.S., as importers raise prices to protect their profits. There's also a risk that as China bolsters the yuan it will reduce its dollar purchases, which means buying fewer Treasury bonds. That could push long-term interest rates higher in the U.S. and slow the housing market and the economy. But most believe that China, which took forever to go this far, will move slowly enough to avoid these traps. --Daniel Kadlec
...Some ordinary Chinese think the government has already gone too far by allowing the yuan to increase by 2.1%. In the days following the revaluation, China's websites hummed with nationalistic criticism of Beijing for knuckling under to American pressure. "How very obedient we are!" read one typical posting on a popular bulletin board run by the People's Daily newspaper. "China will become a puppet colony that breathes the air exhaled by Western countries," read another. Beijing may have taken an important first step toward a more fair and open currency regime. But amid a world of countervailing economic...