Q+A-How would markets react and China change if the yuan rises?

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BEIJING, March 23 (Reuters) - Offshore forwards markets expect the yuan to rise just little more than 2 percent in the next year, but when China eventually scraps its currency's 20-month-old peg to the dollar it will trigger feverish speculation over the longer-term consequences for markets and the global economy.

Exchange rates do not rise and fall in a vacuum. A lot depends on whether China tweaks other policies at the same time and how the rest of the world responds.

But, on the heroic assumption that other things remain equal, here is the impact yuan appreciation might have in various areas.

WHAT WILL THE IMPACT ON FINANCIAL MARKETS BE?

The currencies of emerging Asian economies that are big exporters to China, notably Taiwan, South Korea and Malaysia, stand to benefit most. Commodity currencies should also benefit.

For the big currencies, John Normand of JPMorgan said it would be a stretch to argue that the 2.1 percent revaluation of the yuan in July 2005 marked an inflection point.

He said a revaluation would have to be massive, on the order of 20 percent, to have a noticeable effect on global imbalances and, hence, on other big currencies.

"If China allows only 5 percent appreciation this year, which is roughly the pre-Lehman pace, the real impact will be trivial," Normand said in a report.

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http://www.reuters.com/article/idUSTOE62M06A20100323?type=usDollarRpt