If your clients are invested in the so-called BRIC countries, pay attention.
Thanks to a surge in recent weeks, the Yuan ended 2007 up nearly 7 percent against the dollar – twice the amount it appreciated against the U.S. currency in 2006 – and economists forecast a similar pace of upward movement in 2008. According to the Wall Street Journal, that could help cool down the red-hot growth in the world’s third-largest economy.
The paper reports that some analysts see the apparent policy shift as a sign of confidence. One reason the government seems more willing to move now is that Chinese exporters are surviving the effects of pinched profit margins resulting from the pricier Chinese currency – important because maintaining jobs in the huge export sector is a priority of China’s leadership.
The accelerated movement against the dollar also appears to be driven by several concerns that a stronger currency could help address: inflation running at its highest rate in 11 years, a current-account surplus that soared to 12 percent of gross domestic and ballooning valuations on Chinese stock markets.
As the Journal notes, if China’s exchange-rate policy is a speedometer for the government’s move toward market economics, the shift appears to be accelerating.