China faces increasing difficulties in its forex policy – Nomura

By FXStreet Richard Koo, Chief economist at Nomura, suggests that US Treasury Secretary Jack Lew noted that China is trying to manage the value of its currency vis-à-vis both the US dollar and a basket of currencies.

Key Quotes

“When the two move in opposite directions, he said, the Chinese authorities are forced to make a decision that would not be easy for any government.

The CNY moved similarly with respect to both the dollar and the currency basket until autumn 2014, when the dollar began to rise strongly against other major currencies, taking the CNY with it. That meant that until quite recently China’s currency was also one of the world’s strongest.

On a nominal effective basis the dollar has gained more than 20% since autumn 2014. The hit to US manufacturers, agricultural producers, and other exporters was significant, but exports represent only 9% of US GDP.

In China, meanwhile, exports account for nearly 23% of the economy, and the rise in its currency had serious implications for the broader economy (export figures for both countries are based on 2014 trade statistics).”
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Source:: FX Street