That China’s currency is highly overvalued is a commonly known fact. What is unknown is when China is likely to correct this aberration. Until July last year the Yuan’s value was pegged to the dollar and determined by the government. As a first step towards liberalizing the currency, the government allowed the currency to float in a narrow band and revaluated it by a paltry 2.1%
The expectation that China would either revalue its currency in the near future or allow it to float, led to a large amount of hot money pouring in to make a killing from this appreciation. However, Bank of China’s Governor issued a very clear statement that the country is not considering a revaluation anytime in the near future. This has cooled of the inflow of hot money for now.
One will have to wait and watch whether the Governor made this statement to curb hot money flows or if this is the direction that China wants to take.
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