NEW YORK — It’s been one month since the Chinese yuan was revalued off the U.S. dollar and allowed to fluctuate. So far, so good, but if it doesn’t rise soon, there may be some grumbling in Washington.
Before the revaluation on July 22, the yuan was pegged against the dollar, trading at 8.28 yuan to the dollar. As soon as it was revalued, the yuan dropped to around 8.11 yuan to the dollar. The yuan has stayed at this level since the revaluation. The Chinese government has kept the yuan from fluctuating more than 0.3 percent a day. U.S. economists expected this, saying that if the yuan dropped too quickly against the U.S. dollar, making the yuan relatively more valuable than the dollar, it could have a negative impact on currency translations.
William A. Reinsch, former undersecretary of commerce for export administration during the Clinton administration who is currently serving as a commissioner of the U.S.-China Security Review Commission, said the revaluation is a step in the right direction, but warned that, “if it’s still the same in a couple of months, you’ll start hearing complaints from Congress.”
Sen. Lindsey Graham (R., S.C.) and Sen. Charles Schumer (D., N.Y.) have been the major players in the Senate in regard to the yuan revaluation. Although it was defeated, the two proposed an amendment to the Foreign Affairs Authorization Act that would call for a 27.5 percent tariff on all Chinese goods entering the country as a way to pressure China into the revaluation.
Following the revaluation, Graham issued a statement that said he was pleased with the move. “While the initial revaluation was small, it is encouraging,” Graham said in the statement. “They’ve taken a small first step, which I hope over time will turn into more revaluations and the eventual floating of the Chinese currency.”
Graham, along with Schumer and several U.S. economists, believed that the yuan is undervalued by as much as 40 percent. In the statement, Graham said the revaluation “creates a process for continued upward adjustment to bring the Chinese currency in-line with its true value.”
Reinsch told WWD that he doesn’t think the “Chinese want the yuan to go any faster than it has been. They’re nervous about the consequences about it moving too quickly, and they are worried about capital flight. Plenty of people in the country are telling them to go slow and to be careful.”
The Chinese remember the ruble crisis in 1998 when then-President Boris Yeltsin decided to let the Russian currency float. The Russian economy is still suffering today as a result, and the Chinese don’t want the same thing to happen to their economy.
Reinsch said in the long term, a revaluation will not affect U.S. textile and apparel companies. “But it will give them relief from the imports if the revaluation turns out to be large,” he predicted. “It will make the [Chinese imports] coming in more expensive, and it will allow the American producers to compete more effectively.”