Amid intensifying economic dispute between China and the US, China’s central bank announced that it would begin allowing the country’s currency to fluctuate more during each day’s foreign exchange trading. However, it yet again repulsed demands from the US and Europe for a sustained rise in the currency’s value. On the eve of high-level economic talks scheduled to be held in Washington next week, Chinese leaders are increasingly unpleasant about what they perceive as intimidating activities by the US on trade issues.
Chinese government has increased the amount its currency can appreciate, raised interest rates and curbed bank loans in an effort to humble a runaway economy and lessen trade tensions with the US and Europe. Reacting over the recent development, a US Treasury Department official has said, ‘China’s decision to widen its currency’s trading band is a ‘useful step’ but Beijing must still move more quickly to having the market set the currency’s value’.
Announcing the latest decision the central bank said, ‘the yuan will be allowed to move as much as 0.5 percent on either side of a rate set each morning on China’s foreign- exchange market, from 0.3 percent’. Profits will help tone down the export-led development that has flooded the banking system with cash, triggering concern about a stock market bubble in the world’s fastest-growing Asian economy.
The decision to appreciate yuan and bringing flexibility has marked the first time since 1993 that China has increased deposit rates more than lending rates. The standard deposit rate will be above the inflation rate for the first time in four months. The move may help to curtail the flow of money from households’ bank accounts to the stock market. Household yuan deposits fell by 167.4 billion yuan or $21.8 billion in April from a month before, the first decline since February 2003.
In the period of three months this year, under the pressure of domestic politics, the US reacted belligerently against China for trade violations, filing two lawsuits and imposing steep tariffs on imports. Critics were of the view that Beijing deliberately keeps the yuan undervalued, providing its exporters an unfair price advantage and adding to its widening trade surplus.
