Picture source: reuters.com
China announced a few days back that it will be removing the Yuan peg (6.38 Yuan to 1 USD), which was implemented during the global crisis in order to shield their exporters.
This decision in my opinion, came as the US has been pressuring China to let its Yuan revalue, citing unfair competition. However even with the unpegging of the Yuan, China said that it is only going to let the Yuan revalue slowly and not let it be a big one time jump.
Some implications for the strengthing Yuan might be:
- China citizens will have a higherpurchasing power, as imports will be cheaper hence indirectly increasing their lfestyle.
- Paper companies in China will stand to benefit. This is because most of their pulp is imported (thus stronger Yuan, means cheaper pulp for the paper companies) and the final product is mostly kept within China.
- Airlines will stand to benefit. Fuel cost which are normally demonited in USD and the cost of buying new Boeing planes will drop (in terms of Chines Yuan)