As part of a G8 meeting in Potsdam, Germany, in late May, U.S. Treasury Secretary Henry Paulson and Japanese Finance Minister Koji Omi discussed plans for increased flexibility in the Chinese yuan. The talks came after the Chinese government raised interest rates and widened the currency’s trading band, allowing it to move 0.5 percent per day as opposed to the previous 0.3 percent. Still, the U.S. and other G8 countries believe the managed float is not enough to keep pace with the booming Chinese economy.
The interest-rate increase (the fourth in the past year) of 18 basis points put the Chinese benchmark rate at 6.57 percent, its highest level in more than eight years. Bank of China governor Zhou Xiaochuan said China would continue to loosen the yuan’s trading levels, although he gave no timetable. Paulson, though, said Americans are “impatient” and urged quick action on the matter.
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