China Debunks `Domino Theory’ in World Markets

Given all the recent US government bluster about the value of China’s yuan, the topic got startlingly little play in the just-concluded round of talks between the US Treasury Secretary and Chinese Vice-Premier Wang Qishan. Bloomberg analyst William Pesek examines why:

The yuan is up 20 percent since China scrapped its dollar peg in July 2005. That might not be what U.S. politicians had hoped for, but it’s nothing to shake a trade- sanction bill at. Paulson is now focusing less on the yuan and more on energy and environmental issues.

What was funny was that China’s currency gains aren’t playing out in Asia as expected.

“Many observers bought into a domino theory that held if China were to allow the yuan to appreciate, other countries would do the same,” says Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “But alas, since 2005, most currencies in Asia have appreciated significantly less than China’s.”

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