2 should china revalue the yuan against

The US and other countries hope that greater demand from China for their exports, resulting from a higher value of the yuan, will help them resume sizable economic growth as they recover from severe recession. Their governments especially want to reduce the high levels of unemployment.

2 should china revalue the yuan against

China's currency regulator to promote trade balance The value of the greenback has fallen substantially against other currencies since May Since the yuan is tied to the dollar it's value, too, has declined in the same ratio: This substantial devaluation of the yuan has made many countries angry with China's policy of pegging it to the US dollar.

US President Barack Obama has apparently complained to President Hu Jintao about the yuan's low value and urged him to revaluate it substantially. The US and other countries are worried that the undervaluation of the yuan increases the demand for Chinese exports and reduces China's demand for imports from countries like the US because China keeps the dollar and the currencies of other countries artificially expensive compared to its currency.

The US and other countries hope that greater demand from China for their exports, resulting from a higher value of the yuan, will help them resume sizable economic growth as they recover from severe recession. Their governments especially want to reduce the high levels of unemployment.

Indeed, in good part due to the low value of its currency, China has run substantial surpluses in its current trade account because it imports fewer goods and services than it exports. As a result, it has accumulated enormous reserves of assets in foreign currencies, especially US government assets denominated in dollars.

This is by far the largest reserve in the world and its ratio to China's GDP is huge: I doubt the wisdom of the US for complaining against China's currency policy and of China for its response.

On the whole, I believe most Americans benefit rather than being hurt by China's long-standing policy of keeping the yuan at an artificially low exchange value.

The policy makes the goods imported from China, such as clothes, furniture and small electronic devices, much cheaper than they would have been if China revaluated its currency substantially.

The main beneficiaries of China's current policy are poor and lower middle class Americans and people in other countries who buy made-in-China goods at remarkably cheap prices in stores such as Wal-Mart that cater to cost-conscious families. US companies that would like to export more to China have indeed been hurt by China's currency policy.

They employ fewer people than their capacity and thus contribute to the high rate of unemployment in the US. But I believe the benefits to American consumers far outweigh any losses in jobs, especially because the US economy continues its recovery.

Since the opposite effects hold for China, I cannot justify the country's policies from the viewpoint of its interests. Its consumers and importers are hurt because the government has kept the cost of foreign goods artificially high for them.

Their exporters gain, but as in the US, that gain is likely to be considerably smaller than the negative effects on the well-being of the average Chinese family.

2 should china revalue the yuan against

I have reached a similar conclusion on China's excessive reserves. The US has little to complain if China wants to hold such high levels of low interest-bearing US government assets in exchange for selling inexpensive goods to the US and other countries. China's willingness to save so much reduces the need for the Americans and others to save more.

But are not differences in savings rates part of the specialization that global markets encourage? It is difficult to understand why China is doing this because it is giving away goods made with hard work and capital for paper assets that carry little returns.

UPDATE 2-EU should not press China on yuan - Chinese PM | Reuters

One common answer is that China hopes to increase its influence over international economic and geo-political policies by holding so many foreign assets. Yet it seems to me just the opposite is true - that China's huge levels of foreign assets put it more at the mercy of American and other countries' policies.

China can threaten to sell large numbers of the US Treasury bills and other US assets it holds, but what will it buy instead? Presumably, it would buy European Union or Japanese government bills and bonds. That will put a little upward pressure on the interest rates of other governments.

But to a considerable extent, the main effect in our integrated world capital market is that sellers to China of euro and yen-denominated assets would then hold the US Treasuries sold by China. On the other hand, the US can threaten to inflate some of the real value of its dollar-denominated assets - not an empty threat because of the large US government fiscal deficits and the sizable growth in US bank excess reserves.

Inflation would lower the exchange value of the dollar, and also of the yuan as long as China keeps it tied to the greenback. That would further increase the current account surpluses of China, and thereby induce it to hold more US and other foreign assets, which is not a very attractive scenario for Beijing.

So my conclusion is that the US in its own interest should not urge China to revaluate its currency - countries such as India have a much greater potential to gain from such a revaluation.

On the other hand, I see very little sense at this stage of China's development for Beijing to maintain a very low value of its currency and accumulate large quantities of reserves.Why China Should Not Revalue Its Currency Many Americans are searching for someone to blame for their currently struggling economy.

Higher unemployment, a drop in the value of the dollar, and low consumer confidence have made the booming s a distant dream.

China should not allow its currency to appreciate as the USA is demanding. The appreciation of the Chinese yuan is against the interest of .

Today China’s central bank devalued the country’s currency, the renminbi, by about 2% against the U.S. dollar. It was the biggest one-day move since the renminbi, or yuan, officially de-pegged.

Since China ended its peg with the dollar on June 19, the yuan has gained percent against the U.S. currency but has fallen by percent against the euro. Full revaluation of the Chinese yuan would increase U.S. GDP and employment, reduce the federal budget deficit, and help workers in China and other Asian countries. For the past several years, the best economic research has shown that China needs to increase the value of its currency, the yuan, against the U.S. dollar by 25% to 30%. Jul 05,  · In December of , the China Foreign Exchange Trade System (CFETS) RMB Index was launched by the PBOC to reflect the RMB movement against a basket of currencies.

Full revaluation of the Chinese yuan would increase U.S. GDP and employment, reduce the federal budget deficit, and help workers in China and other Asian countries. For the past several years, the best economic research has shown that China needs to increase the value of its currency, the yuan, against the U.S.

dollar by 25% to 30%. What if China revalues its currency? China’s economy, imports and exports are booming. The story behind China’s growth and tendency to revalue is one of rising CHART 2.

The US and other countries are worried that the undervaluation of the yuan increases the demand for Chinese exports and reduces China's demand for imports from countries like the US because China.

Revaluing China’s currency could boost US economic recovery | Economic Policy Institute