By Tim Seymour
China has very quietly let its currency appreciate exactly 5% since June 2010, and now the yuan is pushing to modern peaks.
Today the yuan dipped under 6.50 to the dollar for the first time since 1993– before the currency was pegged to the greenback during the 1997 Asian forex crisis.
This means the yuan is stronger than it has been in ages, and it is completely due to Beijing continually relaxing its control over the band in which the currency is allowed to trade.
Futures contracts indicate that traders in Hong Kong expect the yuan to appreciate roughly another 3% over the next 12 months.
As widely expected, this is a case of the People’s Bank of China allowing its artificially weak currency to strengthen toward its natural level.
This puts more buying power in the hands of local people and companies at a moment when imported inflation — in the form of oil, food and other commodities — has become a persistent problem.
Whether this actually fights inflation is another story. China’s biggest problem is not consumer prices but widespread institutional speculation in property markets, which has generated a lot of churn in the money supply and so made the rich feel a lot richer.
Meanwhile, those without access to public loans and municipal contacts are still having trouble keeping up.
This will ultimately push commodity prices even higher, while shielding the Chinese people from the worst of it.
