Evidently frustrated by the Euro’s appreciation against the
USD, a group of EU ministers has turned its attention to China, calling
on it to allow the Yuan to appreciate against the Euro. While the Yuan has appreciated nearly 10%
against the USD over the last two years, it has actually decreased in value
against the Euro. As a result, the EU
trade deficit has set a fresh record nearly every month. Unfortunately, the Yuan basically remains
pegged to the USD, and since the USD is depreciating faster against the Euro
than against the Chinese Yuan, the law of triangular arbitrage dictates the
Euro must be appreciating against the Yuan. It appears China’s hands are tied. Bloomberg News
reports:
“I can assure you China will continue to adopt a
reform oriented policy on its exchange-rate mechanism,” said a Chinese Foreign
Ministry spokesman. “But these
adjustments have to be done gradually and in line with the market.”
Read More: EU Calls on China to Let Yuan Appreciate Against Euro
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