China’s yuan hit a five-year peak yesterday after Beijing suddenly relaxed controls ahead of this weekend’s G20 summit, sparking stock gains around the world and questions about just how far China’s new currency flexibility would go.
China’s central bank has maintained a de facto peg since the middle of 2008, a controversial policy aimed at steadying the world’s fastest-growing major economy during the global economic downturn.
But the People’s Bank of China stepped aside yesterday after its surprise announcement that it would allow more flexibility for the yuan, buying some time against critics who argue the currency is undervalued and gives China an unfair advantage in trade.
U.S. stocks climbed, mirroring gains on overseas markets, as investors bet that China’s currency move would invigorate global economic recovery.
The central bank ruled out a one-off revaluation of the yuan and suggested it was at close to fair value.