De-pegging of YUAN

‡ De-pegging: Increasing the flexibility in the currency policy. .‡ Pegging: Maintaining the value with respect to Dollar.

Why was pegging of Yuan to Dollar done? ‡ To preserve jobs in manufacturing sector during the financial crisis. .

. The yuan was again revalued in 2005.83.277 yuan a dollar. ‡ July 2005 to July 2008: The Yuan was allowed to appreciate (steadily) by about 20 per cent against the dollar. ‡ 2001: Yuan was pegged to the dollar at about 8.6 to a dollar.History of Pegging Yuan: ‡ 1994: China had unified the exchange rate system and fixed the Yuan's value at about 8. ‡ July 2008: It was again re-fixed against the US currency at 6.

Reasons for De-pegging: ‡ External political atmosphere ‡ Hot money inflows ‡ Export sensitivity ‡ Labour competitiveness ‡ Real estate risk .

Chinese economy not to be affected much. Banks. Property. China¶s Stock market: Airlines.Effects of Depegging Yuan: ‡ Chinese economy: Exporters to be the main losers. Investment sector to benefit in short term and long term. ‡ World economy: Balance of trade would be maintained. .

. ‡ Yuan can be expected to appreciate 3 percent in about six months and 5 to 6 percent in a year.What is expected to happen? ‡ The Spot Yuan rate expected to move in narrow daily ranges of at most 50 pips. in line with the progress of China's economic growth.

Bibliography: ‡ ‡ ‡ ‡ Business world.com ‡ http://in.com/article/idINIndia49470120100620 ‡ http://www.reuters.html ‡ http://www. 24th june Economic Times 20th june 2010 Hindu Businessline 22 june 2010 ‡ www. june 2010 DNA.com/news/2010-07-06/chinabashing-over-yuan-needs-a-long-rest-commentary-byronald-mckinnon.themalaysianinsider.procurementleaders.com/business/article/e uro-debt-crisis-opens-chance-for-yuan-depegging/ .bloomberg.