MJSA Welcomes China Currency Shift

July 26, 2005

MJSA Welcomes China Currency Shift

Manufacturing Jewelers & Suppliers of America said it welcomed China's recent decision to no longer peg its currency against the U.S. dollar, creating a system that could lead to fairer trade conditions. However, the association noted the move was only a first step; further evaluation of the currency would be necessary to have any meaningful economic impact.

"The overvaluation of the Chinese yuan has been one of MJSA's key legislative goals in its push toward fair trade conditions," said James F. Marquart, MJSA president/CEO. "We have worked with the National Association of Manufacturers to raise the profile of this issue, and China's response to pressure applied by the U.S. is very positive. Now we need to see whether China will use its new system to create meaningful movement in the yuan's value."

By pegging its currency to the U.S. dollar, China had given its exports a strong advantage over those of other Asian countries. Those nations in turn held down the value of their own currencies. This distortion has contributed to what is today a severe trade imbalance between eastern and western countries, and particularly between the U.S. and China. The trade deficit stood at nearly $162 billion in 2004; jewelry accounts for over $1.6 billion, said MJSA.

China will now value the yuan against a basket of foreign currencies, allowing for greater flexibility. Analysts said the move would raise the value of the yuan by only about 2%, far too low to affect prices or impact the trade imbalance. However, the new system allows for more movement in the future.

"We will continue to monitor the exchange rate of the yuan, and to press for fair trade conditions overall," said Marquart. "While this is a good first step, we still have work to do."

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