Policymakers in the world's key economies will closely monitor the Chinese yuan this week for signs it is actually budging after the country announced it would make its exchange rate regime more flexible, according to Reuters. The group of 20 nations is set to meet in Canada to hash out a course for the future as the world gradually emerges from the worst financial crisis since the Great Depression. China announced on Saturday it would allow more flexibility for the yuan, also known as the renminbi or RMB, signaling it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism. But the country's central bank on Sunday explicitly ruled out a one-off revaluation, saying there was no basis for any big appreciation. That confused the outlook for markets, and prompted skepticism that China's actions would live up to its verbal promises. "This announcement was timed to appease global leaders as we move towards the Toronto G20 meetings next weekend," said Sherry Cooper, chief economist at BMO Capital Markets. As Asia's markets approached their Monday open, analysts were expecting a moderate reaction, if any, given China's backpedaling. The most likely outcome is that the renminbi currency will slowly appreciate against the dollar from the current $6.83. Still, regional currencies such as the Australian dollar, could see some sharp gyrations as investors try to figure out what to make of the policy shift. "The currency will move only very gradually. I expect only about 0.2 percent a month until the situation in Europe stabilizes," said Andy Rothman, a strategist at CLSA in Shanghai. China's tempering on Sunday of its initial statement on the yuan prompted criticism from prominent U.S. Senator Charles Schumer, who has argued the currency peg gives Chinese firms an unfair advantage. "Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off. It vindicates our initial skepticism," said Schumer, a leading China critic among U.S. lawmakers. "We intend to move forward as quickly as possible with legislation." U.S. officials have not yet decided whether or not to name China a "currency manipulator," something that would lend support to any legislative effort to punish Chinese producers through tariffs and other trade barriers. The European Central Bank and Jean-Claude Juncker, who heads the Eurogroup of euro zone finance ministers, welcomed in a joint statement China's decision on the yuan. "Given China's important role in the global economy, we encourage the authorities to allow for greater flexibility of the RMB effective exchange rate as a means of promoting balanced growth in China and in the world economy," they said on Sunday.
