For 11 years the Yuan was pegged to the dollar at an exchange rate of 8.28 Yuan to the dollar. The Chinese economy has perhaps been the fastest growing economy over the last decade, which has caused their currency to be significantly undervalued.
Some US based businesses have complained about unfair trade practices associated with the cheap Yuan, stating that it hurts US domestic sales and exports by keeping Chinese products artifically cheap. In July, due largely to US presure, China floated the Yuan to allow for revaluation.
Floating the Yuan has caused the US treasury department to not label China as a currency manipulator, although the US expects further revaluation of the Yuan. Marketwatch reports:
China was able to avoid being labeled a manipulator because of its "initial step" towards a floating currency, said Treasury Secretary John Snow in a statement released alongside the latest report to Congress on global exchange rate practices.
But Snow warned China that the U.S. expects further reform of its foreign exchange regime "as quickly as possible."
Snow said the reluctance of Treasury to name China a currency manipulator is "contingent on further progress to incorporate flexibility reflecting underlying market forces in China's exchange rate by the time of the next foreign exchange report" due in the spring.
