As politicians in Washington and Beijing argue about the proper value of the U.S. dollar and the Chinese yuan, China’s currency has been one of the strongest in the world.
American politicians believe that China improperly holds down the value of the yuan, resulting lower prices for their goods on world markets and spurring China’s huge trade surplus with the United States. Yesterday, Senate Democrats continued down a road to punish China for its “currency manipulation.” House leaders say the move “is dangerous,” while the White House cautions against unilateral action.
Even as Chinese central bank holds the yuan in a tight trading range, it has still appreciated about 4% against the dollar this year. The strength has come about from China raising the trading band while most countries are trying to weaken their currencies.
In September alone, China raised the rate nine times against the dollar, even as the dollar rose against other currencies as investors sought refuge from the turmoil in Europe.
The dollar climbed 6.8% versus the euro, for example, last month.
The real effective rate, which compares the yuan to a basket of trading partners’ currencies adjusted for inflation, for China’s currency rose 2.3% in September alone. The yuan is now at its highest point since China allowed its currency to trade with some flexibility in June 2010, according to J.P. Morgan.
The WisdomTree Dreyfus Chinese Yuan Fund ETF (CYB, quote) tracks the value of the yuan, while the PowerShares DB US Dollar Index ETF (UUP, quote) tracks the dollar.