China: Dollar Volatility Could Derail The Economic Recovery

Float Dollar

China’s latest defence of the nation’s yuan currency peg boasts the stability which a pegged yuan-dollar rate delivers to the world economy.

The threat isn’t an ‘undervalued’ yuan, but rather a volatile and unpredictable dollar.

So thank the yuan peg for delivering some certainty, is the argument:

Bloomberg:

“Large fluctuations in the dollar’s exchange rate may impede the global economic recovery,” the Chinese central bank said today.

China kept its currency pegged to the dollar for almost two years until June 2010 as a response to the global financial crisis. The yuan has strengthened 0.9 per cent in the past six days taking its gain since the fixed rate ended to 1.4 per cent.

“When the dollar strengthens rapidly, global capital markets and prices on commodity markets are under pressure, leading to large market fluctuations and affecting the economies of some resource-producing nations,” the central bank said in the report. “On the other hand, the rapid depreciation in the dollar will cause increased commodity market prices and asset bubbles and affect financial and economic stability.”

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