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Monday, June 21, 2010

Effects of China's decision to let the yuan float



China caved in to Western pressure over the weekend in its decision to abandon the dollar peg and let the yuan float.

This will have two major consequences:

1. It will create new instability for the Chinese currency and global financial markets as the yuan peg was a great source of stability. That's going to be gone now.

2. It will hurt China's exports and, therefore, it's growth. Unless China now takes major steps to boost domestic spending and investment, China's growth rate will be on a steady track down. Bad for the world economy.

I'm not so bullish on China anymore.


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