China move on currency largely misinterpreted
By Christopher Galakoutis
Thursday, July 1 2010 12:26 PM

Both the stock markets and news reports have largely overstated, in my opinion, the Chinese central bank’s announcement on June 19 that it would further reform its exchange rate regime and increase the flexibility of the RMB exchange rate.

The knee-jerk interpretation -- rarely correct -- is that China is so confident about the prospects for global growth that it no longer needs the ‘stability’ of the peg to the US dollar, which was reportedly imposed during the financial crisis in 2008 to help Chinese exporters cope with the global recession.

But readers will recall that the US dollar had a tremendous rally at that time against all currencies. A Chinese currency pegged to the dollar during that time meant that the RMB also rallied against those other currencies, hurting China’s exports to those countries.

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Alrroya.com is a bi-lingual business information portal in the United Arab Emirates.