China agrees to gradual increase in value of yuan
China's announcement that it will allow the yuan to slowly appreciate has been welcomed by the European Commission, although latest signals suggest any rise is likely to be very gradual.
On Monday (21 June), China left the yuan's exchange rate with the dollar unchanged, despite pledging on Saturday to introduce a more flexible currency.
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After months of building pressure in the US Congress, and just one week ahead of a G20 leaders' meeting in Canada, analysts have interpreted the pledge as heralding the end of the yuan's two-year old currency peg with the dollar.
A commission statement said the move would be beneficial to both the European and global economy as a whole.
"This implementation of the decision will help achieve more sustainable growth in the global economy, contribute to reduce external imbalances and strengthen the stability of the international monetary and financial system," the EU executive said.
"It will also entail positive effects for the euro area. By enhancing the flexibility of the RMB exchange rate, the Chinese authorities are providing an important contribution to the success of the G20 Toronto Summit."
But Beijing's apparent willingness to dampen expectations of rapid change, as witnessed by Monday's decision to hold exchange rates unchanged, is likely to result in continued external pressure.
US senator Charles Schumer said the apparent lack of implementation of China's new policy stance meant the Congress should push ahead with legislation to redress the balance.
"Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off," said the American. "It vindicates our initial scepticism. We intend to move forward as quickly as possible with legislation."
Increased tensions over the currency issue have threatened to result in its discussion at this weekend's G20 leaders' meeting, prompting warnings from Beijing not to raise the subject.
US and European exporters have long complained that an artificially low yuan gave China's manufacturers an unfair advantage, although the eurozone's current debt crisis has seen the single currency fall dramatically this year, providing a badly needed boost to European exports.
Analysts say the eurozone's instability is one factor being studied closely by Beijing as it considers strengthening the value of Chinese currency.
Another is the need to avoid large inflows of speculative capital seeking to benefit off the yuan's rise, something officials feel could destabilise their economic policies.
Yuan appreciation between mid-2005 to mid-2008 saw considerable inflows of money.