So much for any hopes for quick appreciation in China's currency

06/22/2010 11:24 am EST


Jim Jubak

Founder and Editor,

 Day 2 isn’t nearly as positive as Day 1.

A day after the Chinese government announced that it would end its policy of keeping its current strictly pegged to the U.S. dollar, the world is getting an object lesson in exactly how slow any appreciation in the Chinese yuan is going to be.

On June 22 the yuan actually fell by 0.23% against the U.S. dollar.

That’s right. The yuan fell. It actually got cheaper against the dollar. The drop was the biggest since December 2008.

This comes a day after the MSCI Emerging Markets Index climbed 2.6% on confidence that the decision meant that the People’s Bank of China would now allow its currency to appreciate against the dollar. That would, markets bet, help Asia’s other exporters who were losing market share to Chinese exporters as their currencies appreciated against the yuan and the dollar.

I don’t think today’s drop in the yuan signals that after just one day the People’s Bank has abandoned plans to let the yuan gradually appreciate. I think a 3% gain for the currency against the dollar is still a good forecast for 2010.

But the People’s Bank doesn’t want currency speculators racking up profits from that policy. Today’s drop in the yuan is a not so subtle reminder that betting on the drop of the yuan isn’t a one-way, no-lose play.

That it takes some of the enthusiasm out of emerging stock markets is just a side effect.
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