Yuan surges as China loosens currency controls (+ analysis and background); Japan points to tax reform to tackle debt; Iran bans nuke inspectors over "false" reports; BP's spill costs hit $2 billion as companies try to overturn deepwater drill moratorium; and more
Top of the Agenda: China Signals Currency Revaluation
China's yuan surged Monday, sending a signal ahead of the G20 summit that China will allow more currency flexibility (Reuters). China's central bank has pegged the currency to the US dollar since mid-2008, enduring Western criticism that the yuan is undervalued and gives China an unfair world trade advantage. The yuan rose by .45 percent to as high as 6.7969 per dollar--the biggest intraday rise since China revalued in 2005--after the central bank announced over the weekend that it would allow the yuan greater flexibility. The central bank ruled out a one-time revaluation of the currency, arguing it was close to fair value. Many economists expect the currency to continue to strengthen in coming days, though at a moderate pace.
Analysis:
Both China and the United States wanted a flexible exchange, but both sides timed their messaging on revaluation (WSJ) for political gain. China wanted to extract the maximum diplomatic reward from its move while giving as little ground as possible, and the United States knew China would not respond to overt pressure.
On the Daily Beast, Gordon Chang says the yuan won't change much and that China just wants to deflect international pressure ahead of the G20 and buy time for its exporters.
In a recent CFR.org roundup, six experts offer differing takes on whether China is a currency manipulator and discuss prudent U.S. pressures on Beijing.
Background:
This Backgrounder examines the origins of the China-U.S. economic imbalance.
PACIFIC RIM: Japan Considers Tax Hike to Address Debt
Japanese Prime Minister Naoto Kan renewed his call for tax reform (Reuters), including a possible doubling of the sales tax to rein in Japan's huge debt.
ELSEWHERE:
- Iran Bans Two IAEA inspectors
- BP Oil Spill Costs at $2 Billion
- Russia Cuts Belarus Gas Supply
This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org