At the recent G20 meeting in South Korea, the Group of 20 finance chiefs agreed to move towards a more market-determined exchange-rate system that reflects underlying economic fundamentals and refrain from competitive devaluation of currencies, potentially impacting the Market Vectors Chinese Renminbi/USD ETN (CNY), the WisdomTree Dreyfus Chinese Yuan Fund (CYB).
China’s successful economy has enabled it to implement destabilizing use of its fixed exchange rate which has further enabled the world’s second largest economy to build an export capacity. Furthermore, China’s restraint of its Yuan and the weakness of the US dollar against other currencies have forced other emerging nations to temper gains in their own floating currencies to remain competitive, states Simon Kennedy of Australian News.
The agreement was made at the G20 meeting was the first time finance officials around the world agreed upon currency manipulation and came to a joint stance on exchange rates. By taking this stance, global finance heads are hoping that Asian nations, more specifically China, will be encouraged to allow their exchange rates to rise without having to worry they will end up doing so alone and lose a trading edge.
At the end of the day, this movement to stabilize exchange rates is expected to help cushion the effects of the massive deficit that the US is carrying and aid in strengthening the dollar against China’s Yuan.
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