Chinese Yuan and Economic Balance
Introduction
In the increasingly globalized business environment, the foreign exchange market is playing a more and more important role. This essay firstly discusses the valuation of Chinese Yuan and the global economic balance with reference to the case “Chinese Yuan and Economic Balance” (Question 1). Secondly, it continues to focus on the situation of Japanese Yen, based on the article “The Yen and Exports: Japan’s Continued Recovery” (Question 2). Finally, it discusses three questions about foreign exchange calculations. (Question 3)
Question 1
a) According to the article “Chinese Yuan and Economic Balance”, Chinese Yuan has been undervalued for years. The implications of such undervaluation are two-sided. To China, an undervalued Yuan largely benefits its exportation of goods and services. This is because when Yuan is cheaper, Chinese goods are cheaper, inducing foreign parties to import from the Chinese market. However, such a situation may not be beneficial for the whole global market. Imbalances in the world economy have occurred. A number of critics claimed that the undervalued yuan is an unfair subsidy to the Chinese exportation. China starts suffering from appreciationary pressures from the outside, and the pressure is even stronger under the tough economic conditions today.
To sterilize the yuan from such appreciationary pressures, China has pursued several policies. Historically, Chinese yuan was pegged to the US dollar at 1.5 yuan to the dollar. After the “opening” in 1984, the pegging rate was adjusted to 8.62 in order to improve the competitiveness of Chinese exports. Recently, under the pressure, the central bank lifted the peg to 8.11 yuan to the dollar. In 2010, China switched the policy to a “managed unpegging” mechanism, under which yuan is valued more freely against a basket of currencies.
This mechanism will have various influences on China and the US. For China, there are both merits and defects. Although this
In the increasingly globalized business environment, the foreign exchange market is playing a more and more important role. This essay firstly discusses the valuation of Chinese Yuan and the global economic balance with reference to the case “Chinese Yuan and Economic Balance” (Question 1). Secondly, it continues to focus on the situation of Japanese Yen, based on the article “The Yen and Exports: Japan’s Continued Recovery” (Question 2). Finally, it discusses three questions about foreign exchange calculations. (Question 3)
Question 1
a) According to the article “Chinese Yuan and Economic Balance”, Chinese Yuan has been undervalued for years. The implications of such undervaluation are two-sided. To China, an undervalued Yuan largely benefits its exportation of goods and services. This is because when Yuan is cheaper, Chinese goods are cheaper, inducing foreign parties to import from the Chinese market. However, such a situation may not be beneficial for the whole global market. Imbalances in the world economy have occurred. A number of critics claimed that the undervalued yuan is an unfair subsidy to the Chinese exportation. China starts suffering from appreciationary pressures from the outside, and the pressure is even stronger under the tough economic conditions today.
To sterilize the yuan from such appreciationary pressures, China has pursued several policies. Historically, Chinese yuan was pegged to the US dollar at 1.5 yuan to the dollar. After the “opening” in 1984, the pegging rate was adjusted to 8.62 in order to improve the competitiveness of Chinese exports. Recently, under the pressure, the central bank lifted the peg to 8.11 yuan to the dollar. In 2010, China switched the policy to a “managed unpegging” mechanism, under which yuan is valued more freely against a basket of currencies.
This mechanism will have various influences on China and the US. For China, there are both merits and defects. Although this
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