China Faces New Pressure to Let Currency Rise

An AP report indicates the possibility that the Chinese government may bow to pressure from trading partners and let the rate of the renminbi rise:

Analysts say Beijing might allow the yuan to rise against the dollar before the middle of this year. But they say any increase will be gradual and do little to narrow U.S. and European trade deficits and create jobs.

“Even if China starts to appreciate, the possibility is it will be very slow and gradual, without an immediate impact on trade,” said Nicholas Consonery, an analyst in Washington for Eurasia Group, a consulting firm.

On Friday, Premier Wen Jiabao said in a speech to China’s legislature that the yuan will be kept “basically stable” at an “appropriate and balanced” level this year, though he gave no explanation of what that would mean.

Yet a report in the New York Times quotes the central bank governor as saying that this is unlikely:

At a Saturday news conference, the central bank head, Zhou Xiaochuan, said China should be “very cautious” about revaluing its currency, also known as the yuan, as long as major economies remained mired in slow growth.

He called China’s practice of pegging the renminbi to the dollar a “special foreign exchange mechanism” made to respond to the world financial crisis. Such mechanisms will be abandoned “sooner or later,” he said, but “we must be very cautious and discreet in choosing the timing.”

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