China's currency: Can they fix it?

Yuan bills Image copyright AP
Image caption China's central bank allows the yuan to move within a 2% daily range

Bob the Builder's signature tune may be just what's going through the minds of officials at the Chinese central bank, the People's Bank of China (PBOC) these days.

On Friday, the PBOC decided to guide the Chinese currency - the yuan - higher by the biggest percentage gain (0.56%) seen since 2005.

You might wonder why the yuan is going UP when only last year markets were turned upside down because of concerns that the PBOC was guiding the yuan lower.

Here's why: the PBOC needs some global credibility after last year's debacle.

At a time when the Bank of Japan appears to be attempting to weaken its currency - the yen - to boost exports (but failing miserably), China's move could help to assuage concerns that it is also fighting the currency wars. It may help boost China's image in financial markets.

Image copyright AP
Image caption The government says it wants to make the economy more consumer-driven

But wait.

Won't this hurt exports? And in turn hurt the Chinese economic engine from re-starting?

Not really.

Exports haven't been the main reason why the Chinese economy has stabilised in recent weeks.

It's been the government pumping money into the economy. So it doesn't hurt China that much if it fixes the yuan rate higher.

It also makes imports slightly cheaper. China imports a lot of high-end Korean raw materials to help manufacture higher-end goods that the country is now making for the world, as it moves up the value-chain.

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