China's Central Bank suggested in an editorial on Friday that it may be
time to de-peg the yuan from the dollar, and instead peg it to a basket
of currencies, The Wall Street Journal reports.
The posting, published in
Chinese state media outlet The People's Daily, gave no details on what
that basket would include, or when these moves could be made.
However, Chinese officials are
about to attend their annual Central Economic Work Conference, so you
can imagine they'll be talking about it there.
Now is definitely the time to talk yuan. This week it fell to its lowest level against the dollar in four years.
Consider this de-pegging
announcement a way for the Chinese government to manage two conflicting
goals for its currency — its desire that the yuan be set by market
forces and that it also be stable.
Those are two conditions that the yuan had to meet when it was accepted into an elite club of currencies
designated as global reserve currencies by the World Bank at the end of
last month. To make the cut a currency has to be widely used and fairly
stable.
China
doesn't want to cause instability by devaluing the yuan, so it has to
figure out how to help the market gently guide the yuan down to its true
value. Of course, the market isn't known for being gentle.
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