Longtime China currency watchers will tell you that the currency management function of the Chinese government is quite sensitive to outside pressure. The figure below shows a fairly sharp strengthening of the RMB (or “yuan”) to the dollar in reaction to the Senate vote in support of legislation targeting the practice.
Source: Google Finance.
As the WSJ notes:
In recent days, the Chinese central bank has intervened in currency markets to drive up the value of the yuan against the dollar, a development in line with U.S. goals.
This gives the opposition here the chance to say, “why stoke a trade war? They’re revaluing anyway.”
Well, if they’re revaluing anyway, we won’t need to use the new powers in the currency legislation to do something about this serious problem for American exporters. But that doesn’t mean we don’t need that option. Wouldn’t it make sense to have the ability to do something about it just in case they slip back into the old dollar peg??!!
Just because I stopped at the last red light doesn’t mean we don’t need a police force.