China Review News (CRN) recently published an article discussing the current appreciation of the Chinese currency (the RMB), which has caught some people unprepared. The article expressed the belief that there are four reasons: (1) The U.S. dollar depreciated; (2) More capital flowed into the emerging markets; (3) Short-term domestic demand for RMB increased; (4) The Chinese central bank did not actively interfere with the RMB exchange rate. Since China is moving towards a market based RMB exchange rate management model, the author suggested that it is very important to ensure, as a long term strategy, that the RMB remains stable. It also serves as a foundation for the internationalization of the Chinese currency. All major international currencies such as the U.S. Dollar, the British Pound, the Euro and the Japanese Yen have this foundation. The article concluded that, although the RMB is currently going up, the goal for the long run should be maintaining stability.
Source: China Review News, November 8, 2012