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Roubini: China’s Decision to Unpeg Yuan May Backfire On The U.S., Yuan May Weaken

Roubini: China’s Decision to Unpeg Yuan May Backfire On The U.S., Yuan May Weaken

Digital composite of Tiananmen Gate of Heavenly Peace and one hundred Yuan banknotes

Courtesy of The Shocked Investor 

"Be careful what you wish". Professor Nouriel Roubini says that China’s decision to unpeg the Yuan could mean the yuan will weaken against the U.S. dollar. That would be the opposite of that the U.S. wants.

China announced that it will slowly and gradually make the yuan "more flexible" after two years of being locked. According to the Reuters report, it was "the move that the U.S. government and others around the world have long been calling for". Not so says Roubini. "This is the first significant signal in years of a change in Chinese currency policy."

‘Since they have not changed the previous range for the band — plus or minus 0.5 percent — most likely on Monday China will allow the renminbi vs U.S. dollar to move,’ said Roubini.

[T]he renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome.

Roubini adds: "Even if the Chinese were to allow a gradual renminbi appreciation relative to the U.S. dollar, the size of such appreciation would be modest over the next year, not more than 3 or 4 percent as the trade surplus has shrunk, growth is likely to slow down on China and labor/employment unrest remains of concern to the Chinese."

Reuters says that Roubini’s comments mirror those of Li Daokui, adviser to China’s central bank on Saturday. He told Reuters in Beijing that the yuan could depreciate against the dollar if the euro falls sharply against the U.S. currency. 

Source: China forex move could thwart U.S. hopes – Roubini

 


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