Yuan Rates To Finally Rise, Fall
The Chinese currency (the yuan) will no longer be pegged to the U.S. dollar, but now will be linked to a “basket” of foreign currencies. Which currencies are in the basket was not specified.
The move is significant because it is the first time that China, under increasing pressure from the United States and other trading partners, has taken action to allow its currency to change in value.
But the action likely will have no immediate impact on trade and investment flows. The initial move led the yuan to rise only about 2 percent against the dollar, doing little to address what economists estimate is a 40 percent undervaluation of the yuan compared with the dollar. In addition, the yuan will remain tightly linked to the basket of foreign currencies, rather than allowed to freely rise or fall in response to market conditions.
The immediate impact from China&'s exchange rate policy on the channel will be limited, given the yuan&'s slight rise against the dollar. But in the long run, it could lead U.S. solution providers to source fewer products from China and more from other Asian producers such as South Korea and Taiwan.
Such decisions will depend on the yuan&'s rate of appreciation. And as the yuan rises against other Asian currencies, it also could diminish China&'s appeal as a place where countries such as Singapore or Malaysia choose to make plant and equipment investments.
Finally, China&'s new exchange policy could lead to a yuan that&'s dramatically higher than the U.S. dollar, thus raising the price of Chinese products in the U.S. market. If that happens, we could see a reduction of Chinese technology products imported to the United States.
How do you think this change will impact the channel? Let me know via phone at (732) 919-1530 or e-mail at jorobert@cmp.com.
