The yuan peg doesn’t matter

Yuan undervaluation: The yuan peg doesn’t matter - at Moneyweek.co.uk - the best of the week's international financial media.

Conventional wisdom says the undervaluation of the Chinese yuan is damaging the global economy. Jonathan Anderson, chief Asian economist at UBS, disagrees. Here he explains why.

No matter who you are or where you live, it's a safe bet that China has had a bigger impact on your life over the last 18 months than ever before. The mainland now sells more than $500bn worth of goods per year to the rest of the world, with exports expanding at a 35% annual rate. At home, China's spending wave, including billions of dollars of over-investment in factories and property, has pushed global commodity prices to exorbitant levels. Internationally, the US dollar has become a hostage to China's economy. The People's Bank of China (PBoC) is already the third-largest foreign holder of US Treasury debt, and the biggest source of financing for the growing US budget and current-account deficits. It ploughs more than $100bn a year into dollar markets.

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