G7 softens stance on China

The Group of Seven industrialized nations have adopted a more conciliatory tone against China’s handling of its currency.

At a time when economic rhetoric between the U.S. and China has increased, a disturbing trend, officials from both sides have reaffirmed the importance of a cooperative relationship. As the world’s largest creditor nation, China can expect to get away with a pegged currency if it is to be expected to finance the fiscal stimulus projects the industrialized countries have planned.

My Opinion: China’s deep pocketbooks and arsenal of US$2 trillion in reserves makes it a formidable entity in global one-upmanship. It seems apparent the new Obama Administration has softened the hard stance adopted last month. I suspect we will see fewer calls for China to float its currency in the future as politicians realize China will have to finance America’s economic recovery plan. If the yuan appreciates, it makes China’s reserves worth less in their domestic currency, thus if the world needs China’s financial backing, it would be wise to stop with the rhetoric.

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