[EDITORIALS]China’s currency movesChina revalued the yuan by 2 percent, abandoning the currency’s peg against the U.S. dollar and linking it to the currencies of its main trading partners. It was the first change in the country’s foreign exchange system in 10 years.
China had resisted pressure from other countries into revaluing the yuan, saying, “The currency issue should be decided on independently by the country.” This revaluation reflects China’s two goals. The country set the scale of the appreciation to be short of market expectations. But the country unexpectedly re-evaluated the currency to maximize the surprise. For the Korean economy, the revaluation has positive and negative effects.
Immediately, the appreciation of the yuan will cause the Korean won to strengthen. Exports to China will increase in the short term but could be damaged due to a slowdown in China’s growth and the weakening competitiveness of local companies with production bases in China.
Korea should be alert, considering it means that the yuan could appreciate further. Whether the yuan revaluation will become medicine or poison to the domestic economy will depend on how well we are prepared.