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China needs to be mature in its exchange rate policy

Comments on Sourabh Gupta "China sheds its dollar shackles", 22/08/2015

A disappointing aspect in the Chinese monetary authority's recent actions was on the third day of its new exchange rate policy, that is, it intervened to prevent the Yuan from falling further and reversed the day's falling trend. While it may be understandable that action was to prevent too rapid depreciation of the Yuan and as a result to avoid currency wars, it was against the stated policy to let the market play a greater role.

From China's economic point of view, the depreciation of about 3% was too little and too late to rest its falling exports, given the real appreciation of the Yuan along with the rise of the US dollar against major currencies, particularly the Euro.

In a sense, it still reflected the timidity of the Chinese monetary authority and possibly the Chinese authority in terms of fearing being labelled as currency manipulator by the US, particularly the US Congress. It has been too coward and has not shown independent and confident leadership skills. That is a pity, to say the least, particularly in the context of the strong downward pressure for its economic growth. They need to be mature and to be seen as mature enough in their dealing with the US.

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