Does the yuan matter?

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With China's closed capital account, the most important factor for its economic partners is the country's financial subsidies rather than its currency policy

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There's too much fuss about the yuan, when other economic reforms are more urgent.

Derek Scissors

Published: 9:15am, 24 Mar 2014Updated: 2:13am, 25 Mar 2014

The mainland's currency policy is not worth the attention it is getting. It is not at all important compared with other market distortions in the Chinese economy, and it is not even very important in how China affects the world economy.

There have already been two heavily reported events concerning the yuan this year - its decline in nominal value against the US dollar and the widening of the daily trading limit against it.

Much has been written about the harm supposedly inflicted on other economies by China's currency policy, and while the latest headlines shout that the yuan is at 12-month lows against the dollar, what is missed is that it is still less than 2.5 per cent off its nominal peak against the greenback.

This decline could easily be erased in a week. It could almost go in a single day, now that the yuan's trading band has been doubled from its previous daily limit of 1 per cent on either side of an officially set midpoint.

The biggest problem for China’s foreign partners – repression of competition

These are just the most recent developments. The ongoing yuan story is one of heavy international criticism for being undervalued. The United States makes the most noise, charging Beijing with following a cheap-currency policy that costs American jobs.