2. Should China Revalue the Yuan Against the Dollar? If so, What Impact May This Have on (1) Us Balance of Payments, (2) Chinese Balance of Payments, (3) Relative Competitiveness of Mexico and Thailand, (4) Firms Such
Should China revalue the yuan against the dollar? If so, what impact may this have on (1) US balance of payments, (2) Chinese balance of payments, (3) relative competitiveness of Mexico and Thailand, (4) firms such as Wal-Mart, and (5) US and Chinese retail consumers?
China, the largest growing market in the world, currently has a policy regarding monetary regulation that allows the Yuan to “float”. This has seen the Yuan appreciate by approximately 24% over the past few years. Today, the exchange rate between the Chinese Yuan and the American Dollar is approximately 6.3 Yuan to 1 Dollar. Some argue that China should revalue the Yuan again the dollar, establishing a more fixed exchange rate. Others believe that current should allow the Yuan to float, as it constitutes the idea of a free market. If the Yuan was revalued to be exchanged at a higher exchange rate again the, then the United State’s balance of payments would decrease proportionally. Alternatively, the balance of China’s payments would increase. Countries that have their currency tied with the United States, such as Mexico, would likely have their competitiveness improve while countries tied to China, such as Thailand, would have their competitiveness diminish. Wal-Mart, a major American corporation, would have harder time paying for their overseas imports. Likewise, American retail consumers would not be able to purchase as much due to higher prices relative to the Yuan. Chinese retail consumers, on the other hand, would be able to purchase more goods. Initially, I believed that the Chinese Yuan should not be revalued upward. The idea of having a currency of greater worth seemed to be the default conclusion. After reading the assigned chapter, however, there seem to be many advantages of having a weaker dollar as well as a strong one. Currently, the United States has a massive trade deficit due to having a stronger dollar in comparison to the currency in much of the developing world. In order
China, the largest growing market in the world, currently has a policy regarding monetary regulation that allows the Yuan to “float”. This has seen the Yuan appreciate by approximately 24% over the past few years. Today, the exchange rate between the Chinese Yuan and the American Dollar is approximately 6.3 Yuan to 1 Dollar. Some argue that China should revalue the Yuan again the dollar, establishing a more fixed exchange rate. Others believe that current should allow the Yuan to float, as it constitutes the idea of a free market. If the Yuan was revalued to be exchanged at a higher exchange rate again the, then the United State’s balance of payments would decrease proportionally. Alternatively, the balance of China’s payments would increase. Countries that have their currency tied with the United States, such as Mexico, would likely have their competitiveness improve while countries tied to China, such as Thailand, would have their competitiveness diminish. Wal-Mart, a major American corporation, would have harder time paying for their overseas imports. Likewise, American retail consumers would not be able to purchase as much due to higher prices relative to the Yuan. Chinese retail consumers, on the other hand, would be able to purchase more goods. Initially, I believed that the Chinese Yuan should not be revalued upward. The idea of having a currency of greater worth seemed to be the default conclusion. After reading the assigned chapter, however, there seem to be many advantages of having a weaker dollar as well as a strong one. Currently, the United States has a massive trade deficit due to having a stronger dollar in comparison to the currency in much of the developing world. In order