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Chinese Yuan Hits 19-Year Peak

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China’s yuan leapt to a 19-year high on Friday as the Chinese Central Bank raised its daily reference rate by .08 percent to 6.2689 to the dollar. This is a rare instance of yuan appreciate for the tightly controlled currency. The yuan is allowed to fluctuate within one percent of the reference rate. The new reference rate is the highest in ten months.

New President Xi Jinping is on his first foreign tour since taking over early in March. He has been visiting other BRIC nations, such as Brazil, Russia, and India, as well as African countries. The yuan’s current high is partly reflects political speculation stemming from the tour, as the BRICs are major export markets for China, and Africa is a major source of raw materials.

More broadly, the Chinese government has been gradually allowing the yuan to appreciate in the face of international complaints about currency manipulation. An artificially weak yuan makes it cheaper for companies based in China to export goods. It also makes imports more expensive in China, which can lead to trade imbalances that would favor China. As the yuan rises, Chinese exports become less competitive, combining with rising labor costs to make China less appealing for manufacturers.

 

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