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Ezrati’s Economic Outlook: China’s Currency Shift?

Recent comments reflect a new focus on domestic demand.

By Milton Ezrati | Updated on April 03, 2012
Recently the head of China’s central bank, Zhou Xiaochuan, made comments that drew less attention than they deserve. First Governor Zhou suggested that market forces would play a bigger role in setting the value of China’s currency, the yuan or renminbi. Then he mused that the yuan should rise further against the dollar and on foreign exchange markets generally.

There is room for two responses to this seemingly new Chinese position, one cynical and the other much more positive and hopeful.

The cynical view reflects history. China has long strived to promote its exports by keeping its yuan cheap to the dollar and other major currencies. The global pricing advantage this policy gave Chinese goods enabled the country famously to raise its share of global exports from nearly zero in the early 1990s, when it initiated the policy, to upwards of 12% more recently.

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