The strength of Chinese currency

The strength of Chinese currency
YuanWhile the Chinese Yuan was expected to depreciate after a period of uncertainty towards the end of 2012, there is every sign that the currency is stabilising, putting investment back on the mind of speculators the world over. In fact, the Yuan recently hit its highest levels since the start of its revaluation process in 2005, reversing last year's downwards trend.
Graphs indicating the performance of the currency in terms of its market price, related to the daily fixing rate by the People's Bank of China, demonstrated the verve with which the Chinese Yuan is performing compared to the ubiquitous US dollar.
One significant aspect of the resurgence of the Yuan is the fact the weakening trend of the currency against the dollar, as determined by the People's Bank's own fixing, had remained unchanged. The effect of this had been to open a large gap between the market and the People's Bank fixing. Current figures demonstrate that this has been totally reversed.
Western economies have viewed much of the People's Bank's monetary activities with trepidation, particularly when it has appeared that the Chinese financiers appear to eschew conventional tools, such as the manipulation of interest rates and reserve requirement ratio. Yet the People's Bank have been willing to allow the Yuan to drift far higher – while all the time wishing the trend would be steered in the other direction. This type of financial speculation has been the key to the People's Bank's robust position in the first place. The bank expanded rapidly because its balance sheet was allowed to swell as money was created, preventing the Yuan from appreciating any quicker than it did. This process was halted due to the fiscal phenomenon of persistence money overflow.
The strength of the Yuan may well indicate that the money flow has reversed, with the trend coinciding with the worldwide risk-on sentiment. Concerns about the effect of quantitate easing on the dollar have undoubtedly helped drive the international markets' current appreciation of Chinese Yuan.
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