Monday, November 26, 2007

Accelerate the Appreciation?

Nicholas Sarkozy has visited China where he reportedly secured deals worth €20 billion for French firms. Fairly impressive, if it is really true that the visit really caused them.

Anyway though, he also spoke on the issue of the Chinese currency and told Chinese leaders that they should allow the yuan to strengthen and that doing so would be in China's best interest as well. Here I for once agree with Sarkozy on a monetary issue, but I can't resist the temptation to point out an error in his statement when he said:

"This means that, for its own sake as well, China needs to accelerate the appreciation of the yuan against the euro."

Accelerate the appreciation? Make that decelerate, stop and preferably reverse the depreciation of the yuan against the euro. While the yuan has appreciated against the U.S. dollar, so has almost all other currencies, and most -including the euro- have in fact appreciated faster against the U.S. dollar than the yuan. That means that the yuan has depreciated against the euro. The euro has risen from 10.2 yuan in June to 11 yuan today. This is of course one of the reason why the Chinese current account surplus have continued to rise despite the steady appreciation of the yuan against the U.S. dollar.


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