We recently hear a lot about the need for China to adjust the exchange rate of its currency, the yuan. In fact, Federal Reserve Board chairman Alan Greenspan, during the U.S. Senate Banking Committee hearing July 16, said it is "increasingly evident" that China should allow its currency to trade freely on the market.
Asian currency adjustments were also discussed at a conference in Bali earlier this month among finance ministers from the Asia-Europe Meeting (ASEM) member nations, where Finance Minister Masajuro Shiokawa of Japan noted yuan's appreciation would benefit China in the long term.
Behind these arguments is, of course, the rapid increases in China's exports and foreign currency reserves, which stood at $324.9 billion at the end of March. Another factor is that -- since the yuan is effectively pegged to the U.S. dollar -- a decline in the buck will automatically lead to depreciation of the yuan.