Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Yuan must appreciate to curb inflation

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney) -- It's been a remarkable recovery for China, but now the fast-growing economy is fighting runaway inflation, and experts say the country must allow its currency to appreciate to stay on course.

"The right thing for China, the United States and the world is to let the renminbi appreciate," said Barton Biggs, managing partner at New York-based hedge fund Traxis Partners, at the Bloomberg China Investment Strategies Conference Wednesday. "And the best way for the world is a gradual, 7.5% or 8% annual appreciation.

The People's Bank of China took steps last June to allow the yuan to trade more freely against the dollar. But since then, the Chinese currency, also known as the renminbi, has only increased about 3.5%.

Biggs, who calls himself a bull on red hot emerging markets, said if the yuan does not increase in value, China will face the threat of broad inflation, particularly with wages -- a situation that is already playing out.

China has been facing increasing international pressure, especially from the U.S. government, to let the yuan appreciate to improve trade balances.

Ahead of last month's visit by Chinese president Hu Jintao's, Senate Democrats introduced a bill that would impose penalties, including possible tariffs, on nations that manipulate their currencies, namely China.

Sen. Charles Schumer, a Democrat from New York and one of the biggest Congressional critics of China's currency policy, argues that the yuan is artificially undervalued by as much as 40%. He says that's hurting American manufacturers and slowing the U.S. economic recovery.

But Gary Shilling, president of investment advisory firm A. Gary Shilling & Co., argued that a higher valued yuan won't help lower the United State's trade deficit.

"If you see the yuan rise, you'll just see more Chinese export companies move to Vietnam and Bangladesh," said Shilling at the Bloomberg conference, calling the U.S. government's push for a higher yuan a "cheap political shot."

Shilling added that allowing the yuan to trade freely against the dollar could actually lead to further depreciation of the Chinese currency, as it could prompt investors to shift their money into other higher yielding assets. To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.85%3.86%
15 yr fixed2.97%2.94%
5/1 ARM3.15%3.08%
30 yr refi3.96%3.97%
15 yr refi3.07%3.04%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,058.35 -469.68 -2.84%
Nasdaq 4,636.11 -140.40 -2.94%
S&P 500 1,913.85 -58.33 -2.96%
Treasuries 2.17 -0.03 -1.27%
Data as of 7:21am ET
Company Price Change % Change
Bank of America Corp... 15.53 -0.76 -4.65%
Apple Inc 107.72 -5.04 -4.47%
General Electric Co 23.88 -0.94 -3.79%
Ford Motor Co 13.72 -0.15 -1.08%
Microsoft Corp 41.82 -1.70 -3.91%
Data as of Sep 1

Sections

Netflix CEO Reed Hastings doesn't appear to be worried about Apple muscling into his territory, even if investors are. More

How do you run a successful crowdfunding campaign? Indiegogo's CEO Slava Rubin offers his top tips and mistakes to avoid. More

Here's what you need to earn to afford a home in the 27 biggest metro areas in the country, according to HSH.com. More