Rate Adjustments in China

The moderates in the American treasury department counted one more in the win column for their diplomacy with China, when the Chinese announced a 2.1% readjustment of the Renminbi (why not just call it Yuan and make it easy on the rest of the world?). The Chinese also unpegged the RMB from the USD and let it float - sort of. The RMB will be allowed to fluctuate +/- 3% in a given day.

The American euphoria was short lived because the Americans realised that this was well short of free floating RMB. It was just an effort by the Chinese to counter any criticism of an artificially cheap RMB. The demands for more stringent tariffs against Chinese imports have started making their rounds again after a few days of silence.

Tariffs on the Chinese would be hypocritical of the Americans. China's economy and their fiscal infrastructure are not mature and they cannot afford a full currency float just yet. The fact that a relatively weaker Indian economy can do so is a different story and speaks volumes about the stronger maturity of the Indian fiscal infrastructure. Americans still artificially hold up their dead textile and steel industries by penalising imports from India, China and other developing countries.

If America wants the market-forces to truly define the economies of the world, it is high time that America starts practising that in its hinterlands what it preaches to the rest of the world.