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    ENGLISH EDITION OF THE WEEKLY CHINESE NEWSPAPER, IN-DEPTH AND INDEPENDENT
    site: HOME > > Economic > Opinion
    Floating the Yuan Should Not Be Rushed
    Summary:

    While the dollar weakened these past few weeks, the yuan plowed to new heights that left it stronger than the Hong Kong dollar-- a critical point of reference. Many market analysts forecast that we are in the final stage of dominance by the dollar, with some even going so far as to suggest that the yuan is on its way to becoming the world currency.
       
    These arguments are worth listening to, but we must be patient and careful to not exaggerate the value of these trends. There are still many obstacles that must be first overcome by the yuan.
        
    After last year’s yuan revaluation, opposition to further appreciation was widespread. But the forecasts of recession and an export slump have yet to materialize, and on the contrary, the trade surplus is poised to continue increasing. Although from a technical standpoint the yuan is more elastic now, there is still much room for appreciation.
        
    In the five years since joining the World Trade Organization, China’s global economic and political reach has gradually expanded. The appreciation of the yuan can be seen as a reflection of this newfound influence. In this sense, the trend of appreciation possesses more than just market significance-- it is symbolic. Similarly, depreciations in the dollar have a subtle but palpable effect on Chinese, sometimes making it easy for us to overestimate the international status of the yuan as it challenges the currencies of other superpowers.
        
    But the yuan is not decided purely by the markets, and likewise, China’s capital accounts have not been fully liberalized. These processes will take time, and at the moment, are more important than the internationalization of the yuan.
        
    The yen appreciated in the 1980’s riding a wave of new wealth and the positive outlook held by Japanese citizens. But warnings of the trouble to come were buried in the optimism, and eventually the bubble burst. Although there were many other reasons for the Japanese recession, the spreading of impatient excitement throughout the country ultimately affected policy. We would do well to heed this history lesson. 
     


       
    The strength of the Chinese economy will naturally reflect the strength of its currency. In time, with a consistently growing economy behind it, the yuan will have greater influence both regionally and internationally. But at the moment our domestic financial environment is unripe for such exposure. Until then, slow and steady wins the race. 

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