The Chinese Yuan Debate (Essay Sample)
1. How might China\'s concerns of a Yuan appreciation be Alleviated? 2. Currently the Yuan is not a convertible currency, meaning that the Chinese individuals are not permitted to exchange their Yuan for dollars to invest abroad. Moreover, companies operating in China must convert all their foreign exchange earnings into Yuan. Suppose China were to relax these currency controls and restraints on capital outflows. WHAT WOULD HAPPEN TO THE PRESSURE ON THE YUAN TO REVALUE? Explainsource..
The Chinese Yuan Debate
(January 04, 2014)
The Chinese Yuan Debate
Chinese Yuan (Renminbi) ties with the United States dollar over the decades, China has been concerned with the appreciation of the currency through controls. Currency appreciation identifies with increase in value of Yuan in respect to the United States dollars, which is the reference currency in this context, an indication that China expects to buy United States dollars at a lower rate, an example of appreciation is 1 Yuan = 0.17 USD, appreciation pushes the exchange rate at 1 Yuan = 0.2 USD. In this context, once the Chinese Yuan appreciates, then the United States dollar will be considered as less competitive as compared to the Chinese Yuan.
Appreciation of Yuan
Alleviating the concerns of the Chinese Yuan will be facilitated through increasing the demand of the currency in the global market (Chinaglobaltrade.com., 2012). This will be facilitated by increasing the value of the Chinese Yuan in the world markets. There are different ways of alleviating the Chinese Yuan, the first model is through increasing the exports of the goods and services, in so doing, international business networks will need Chinese Yuan in paying for the exports to different nations (Fingleton, 2013).
The second model of appreciating the Chinese Yuan is through the Chinese central bank increasing the interest rates. High interest rates will encourage individuals and investors in China to deposit their savings with the local banks with the intention of earning interest rates that are higher (Karmin, 2009).
The third model of appreciating the Chinese Yuan is through increasing the Chinese employment and per capital income; in so doing, the demand for the goods and services will go up, which will facilitate more demand for the Chinese Yuan in the local market (Fingleton, 2013). China will manage alleviating the value of the Chinese Yuan through increasing the demand of the Chinese Yuan in the international markets, which is characterized by the foreign exchange market.
Convertibility of Yuan and Currency Controls and
Restraints on Capital Outflows
Surveys have indicated that the Chinese Yuan in currently not convertible with the United States dollars among other currencies. China as a way of alleviating the Chinese Yuan does not permit the exchange of the Chinese Yuan in preference for dollars for investors seeking to invest outside China (Khanacademy.org., 2013). China has set rules governing companies operating in China, that the companies must convert all foreign currencies in preference of the Yuan (Karmin, 2009). In so doing, the Chinese Yuan has been stable in the international markets, and so some extent has encouraged appreciation of the Chinese currency.
Surveys indicated that if China relaxes on currency restraints and controls on capital outflows, it could result to lost value on the part of the Chinese Yuan. It has been noted that most companies in the world prefer operating through United States dollars as a reference currency (Zhang, 2013). China forces its business counterparts to use Chinese Yuan as the reference currency in the region. If China relaxes on the currency restraints and controls, then there are high chances that United States dollars will influx in the Chinese market, a model that will lead to a depreciation of the Chinese Yuan (Fingleton, 2013). Chinese government currency restraints and controls are geared at protecting the value of the Chinese Yuan both in the local market and in the international market.
The economic rise of China is dated back to the 1980s, when China opened up its doors to the economic relations and also to international trade. Deng Xiaoping is the reformist leader who initiated the current economic boom in China. The quasi-capitalist venture has improved with time hence positioning China strategically in the global trade (Chinaglobaltrade.com., 2012). Surveys indicated that the improvement of the Chinese economy has partly been contributed by China pegging the Yuan to the United States dollar. The pegging of the currencies was followed by policies that have facilitated international trade between the United States and China (Karmin, 2009).
Trade between the United States and China dates back to 1985, the trade has been going stronger and stronger with time. Pegging Yuan with the United States dollar has significantly influenced the economy o...
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