Renminbi is Expected to Appreciate

Last Saturday, June 19 2010, The People’s bank of China made an unexpected announcement about Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility. It is said “In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.” This roused hope that the RMB, also know as yuan, will appreciate in the future and at the mean time, the USDCNY exchange rate reach 6.7968, the lowest ever.

Impacts of this on China’s exports is obviously. Cost of Chinese products will increase in U.S dollars and so buyers who pays in USD will facing a price increase.

But thank goodness, the next day, the rate weaken to 6.8136. This rate is 0.18 percent weaker than Tuesday’s rate 6.7980 but still stronger than the rates before the announcement of  The People’s Bank of China. This could be a sign that the rate will not change sharply. But will it stop here or keep going stronger or even weaker?

I believe it will keep going stronger in the long run. And both China exporters and overseas buyers need to find a way to eliminate the impact of this movement.