Speed Read: Yuan Revaluation

Cur

rency markets went into a brief spin last week when the website for the Chinese Communist Party mouthpiece People's Daily carried an erroneous story stating that China would soon revalue its currency, the yuan. China's central bank quickly dashed the expectation, saying it has no immediate plans to change the yuan's peg to the U.S. dollar. But the scare was enough to prompt all sorts of questions on the Chinese currency. We oblige with the answers:

I see Chinese money referred to as both yuan and renminbi. What's the difference? The latter is the official name of Chinese currency (translation: people's money). The former is the basic monetary unit, like the U.S.$1 note.

What's it worth now? Since 1998, the yuan has been valued at about 8.28 yuan to the greenback. China's economy is booming— suggesting a revaluation upward, which is what the U.S. would like. By keeping the yuan pegged to the dollar, whose value has declined against most currencies, Chinese exports have squeezed the profits of non-Chinese suppliers.

Poor babies. What's wrong with $100 DVD players and $20 designer shirts? Nothing. But you still need a paycheck to buy them. Critics say that China's low labor costs hit employment elsewhere. Politicians in the U.S. and Europe are threatening to limit Chinese imports if Beijing doesn't increase the value of the yuan and hence the price of its exports. The U.S. last week restricted annual growth of certain Chinese imports, such as cotton trousers, to as little as 7.5%.

Will China respond? Beijing acts in its own best interests; stability at home is what counts. And it doesn't like being lectured by the West: these guys were using paper money in the 9th century, when Washington ran on wampum. Predicting when China will act is like forecasting the breakup of Brad and Angelina—you're pretty sure it will happen, but you don't know when. Many economists expect a small adjustment of around 3-6% before the end of the year. That wouldn't much hurt either Beijing or cheapskates like you. A Chinese DVD player after revaluation: $105. Getting Washington off your back: priceless.