Chinese Prime Minister Zhu Rongji approached Hong Kong officials to seek advice on the potential impact of greater flexibility in the valuation of the yuan and a possible devaluation. Of course, officials in Hong Kong are quite interested in the impact of changes in China's exchange-rate regime. Nonetheless, recent steps taken to strengthen the currency board set up under the Hong Kong Monetary Authority will limit the disruptive effect on the local currency.
When it comes to policy on the international value of the yuan, there are various camps. There are those who anticipate devaluation of yuan with a sense of dread concerning its impact on regional stability, while others despair about the delay of the inevitable.
These concerns arise from the fact that economic realities seem to fly in the face of the frequent denials issued by Chinese officials that they have no plans to change the de facto peg with the U.S. dollar. Despite wide fluctuations in black market values on dollars traded in Shanghai, the yuan has remained within a narrow trading range since its last official devaluation.
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