China Yuan Announcement: What It Means To You
A day later, you might be wondering: Why should I care about the China yuan announcement? That's what I discussed with CBS3 this morning.
For years, the Chinese currency (both "yuan" or "renminbi" are used, kind of like pound and sterling or dollar and greenback) has been pegged to the value of the US dollar. China announced that it would allow the yuan to eventually appreciate against the dollar. The timing of the move is probably what made investors rethink their early euphoria over the news, but here's what you need to know.
The yuan peg has kept the cost of Chinese goods low and given Chinese exporters an unfair advantage over US manufacturers on the global stage. But China has feared allowing the rate to float because the impact on its export industry might slow down the country's growth. (Here is more on the economic impact of a currency float.)
Here are the potential winners and losers of the yuan move:
Winners:
- US exporters and resource companies, whose goods will be valued more fairly
- Large US multinationals (think GE) that want to sell goods and services to China
- US trade deficit, which could narrow
- US employment, which could improve with increase in domestic manufacturing
- Investors, who want a more equitable global economy that isn't fixed
- US consumers, who could pay more for Chinese goods (but only a little more and not any time soon)
- US importers, who purchase Chinese goods and sell them in the US
- US companies that rely on China for production
