The Yuan Debate Inside China Intensifies

“(China) should resume the pre-crisis managed floating exchange rate as quickly as possible,” Xia Bin, a researcher with the Development Research Center, a think tank under the cabinet, told Reuters. But, currency exchange rates are set by senior political figures and not the bank itself.

Both China and the US Administration face intense pressure to resolve the yuan issue. One hundred members of Congress have asked that China be branded as a “currency manipulator” by the Treasury Department. That, in turn, would likely cause a series of tariffs and sanctions on China’s imports, the result of which would be a full-blown trade war between the two huge trading partners.

The recommendations of the new economic advisers to the Chinese central bank may be a way for the People’s Republic to soften its stance on the yuan before an April 15th ruling by the Treasury Department on China’s trade status. The central bank’s new advisers are not the only ones in China calling for a change in monetary policy. A number of CEOs at large companies on the mainland have been vocal about the flaws of the policy as well.

The Chinese central committee does not want to be seen as “weak” on the yuan decision, which would show the US and the world that unrelenting pressure can cause the country’s powerful politicians to back down on critical positions. It may be easier for a change of heart to bubble up within the Chinese economic and industrial sectors so that the government can say it is acting in the best interests of its own financial system.

When Chinese central bankers and CEOs can talk about the nation’s monetary policy in public, it is a certain sign that the policy is about to change.

Douglas A. McIntyre

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