As the American economy recovers and the Federal Reserve curtails its
quantitative easing program, the US dollar is expected to continue to
get stronger. Reinforcing the trend will be monetary easing measures by
central banks in Europe, Japan and several other countries.
A strong dollar will create more volatility in global markets, cause crises in emerging economies and pose challenges for China's foreign exchange reforms. Therefore, a major challenge for Chinese authorities this year will be how to speed up and deepen reforms of its foreign exchange market and introduce liberalization at a time when the greenback is strong.
The European Central Bank's recent introduction of its own QE program has weighed on the yuan, which has nearly fallen by the maximum 2% in four foreign exchange trading sessions since Jan. 26. Unlike the decline of the yuan in February 2014, which was driven by the Chinese central bank's move to cut the yuan's daily mid-point price, the Chinese currency is set to experience a longer downturn against the greenback.
China's current foreign exchange market, which was established after the 2005 reforms, was built on a floating rate regulated by the mid-point price of the yuan against a basket of foreign currencies. But the yuan's rates have been decided mainly by its movement against the US dollar. The fact that the greenback is the major currency in the global market and has been weak has not only prevented the flaws of this system from becoming big problems but also made Chinese products more competitive internationally.
Read more at Click here / www.trade4x.net
A strong dollar will create more volatility in global markets, cause crises in emerging economies and pose challenges for China's foreign exchange reforms. Therefore, a major challenge for Chinese authorities this year will be how to speed up and deepen reforms of its foreign exchange market and introduce liberalization at a time when the greenback is strong.
The European Central Bank's recent introduction of its own QE program has weighed on the yuan, which has nearly fallen by the maximum 2% in four foreign exchange trading sessions since Jan. 26. Unlike the decline of the yuan in February 2014, which was driven by the Chinese central bank's move to cut the yuan's daily mid-point price, the Chinese currency is set to experience a longer downturn against the greenback.
China's current foreign exchange market, which was established after the 2005 reforms, was built on a floating rate regulated by the mid-point price of the yuan against a basket of foreign currencies. But the yuan's rates have been decided mainly by its movement against the US dollar. The fact that the greenback is the major currency in the global market and has been weak has not only prevented the flaws of this system from becoming big problems but also made Chinese products more competitive internationally.
Read more at Click here / www.trade4x.net
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