Speculation is fizzing around China amidst beliefs that its central bank (PBOC) will INTERVENE to limit gains of yuan against the dollar. China announced over the weekend that they would drop the 2 year peg (FIXING) of the yuan against the dollar, allowing the yuan to appreciate.
The Chinese consumer can now buy a bit more dollars than before.
If China becomes more consumer-oriented, then will inflation rise in the US, if cheap goods from China are no longer available. This sentiment was echoed by Michael Woofolk, MD at Bank of New York Mellon, who revealed that the higher cost of Chinese goods would lead to inflation and higher interest rates in Europe and the US, resulting in slower growth.
"This is an important step" said US Treasury Secretary, Tim Geithner. One of Obama's foreign policy goals is a stronger renminbi. The idea is that if Chinese good becomes more expensive, US consumers will buy more US goods.
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