The yuan should remain in the spotlight this week as the world looks at the expectations that Beijing is ready to increase its interest rate against the dollar by 2% or 3%. Most likely in China are considering a return of their currency as it was between 2005 and 2008, to allow it daily movements within a given band.

From the March deficit, it is expected that the yuan could actually become stronger. The trade deficit rose to over 7 billion dollars, exports grew by over 20% over the previous year and imports also, even more than 60%, again compared to the previous year.

A view that analysts are beginning to analyze the true fiscal

strength of China, beyond their foreign currency reserves, which also are very large. Earlier this year it was revealed the extent to which the income of local government finances is tied to the housing market. Sales of land by local governments in China has generated more than 1,500 billion yuan during the past year, more than 60% over the previous year. It 'was therefore estimated the total debt of local authorities on 12 trillion yuan by the end of 2010, representing one third of GDP.

Obviously a stronger yuan too worried investors because it may lead to structural imbalances in the economy and rising inflation. Obviously, these factors may weigh on the yuan, although it is a weight. China obviously needs to find a balance, because if inflation were to spiral out of control may begin to lose much value to the currency.

This is one reason why Beijing would proceed with a phased approach to its currency reform. Meanwhile, the penalty applies obviously to be careful how they move currencies.