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People's Daily Online>>China Business

Yearender: Yuan volatility tells true story


08:28, December 14, 2011

BEIJING, Dec. 13 (Xinhua) -- Recent yuan volatility, to some extent, tells the true story of the global economy.

In the past 10 days' trading, the yuan fell to the bottom of its official trading band against the U.S. dollar, triggering suspicion of a potential weakness in the world's second-largest economy.

The drastic fluctuations, however, were evidence that the currency's value is not a political decision, an accusation levelled by a range of governments around the world, but rather a mirror of the real economy.

No currency in the world can always keep rising against others. The yuan is no exception. It depreciates when investors seek other currencies for a safe haven. The bi-directional waves may be a clue that yuan prices are approaching a balanced level.

The continuous depreciation on spot markets was based on belief that China's economy will slow down on faltering external demand, as consumer confidence weakens in the European Union (EU) and the United States, the country's top two trading partners that are still struggling through their sovereign debt crisis.

On the other hand, depreciation is relative. Last week's EU summit may have failed to assure investors who flocked to buy U.S. dollars. When the markets turn scary, the ease of trading in the U.S. currency and in the U.S. deep underlying bond markets overwhelmed longer term concerns.

For decades, the dollar has been the world's main reserve currency, leaving other countries vulnerable to importing inflation from the United States. Although the EU crisis has seemingly overshadowed U.S. debt woes, investors -- private and official alike -- worry about whether the United States intends to inflate its debts away.

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