TOKYO – The five most dangerous words in economics are “this time things are different.”
Except, when they really are. A case in point is how the unlikely strength of the Chinese yuan is reordering global currency market dynamics. And, perhaps, creating a new power-sharing arrangement between the two biggest economies.
“A striking feature of the turmoil of the past year is that it is the first major global economic dislocation in which China has allowed its currency to strengthen, rather than keeping its value pinned in a very tight range,” says economist Wei He at Gavekal Research.
Part of the yuan’s 10.5% gain over the last 12 months is a mechanical response to a weakening dollar. The yuan could now be near the top of the trade-weighted range that Beijing is comfortable with. As long as the dollar continues to drift lower, strategists say, the yuan may keep rising against it.