China Manipulating the Yuan
January 17th, 2011 § 1 Comment
Evaluate the US claim that China is manipulating its currency
Some U.S economists view that China is manipulating its exchange rate currency to gain an advantage in trade. This would therefore prevent the export-led country, China from being floating on the market and gain an positive outcome. A floating exchange rate means that the the currency is allowed to fluctuate freely and be determined without intervention in the exchange market by the government or central bank. An exchange rate is the value of one currency for the purpose of conversion to another.What China has been doing, is to set the price of Yuan lower at a lower value to trade with the US dollar. “Some, like Rep. Sander M. Levin (D-Mich.), even blame the unemployment problem in the U.S, perhaps the leading issue in the midterm elections, on China’s currency policy” (Hostetler, 2010).
The Japanese has been reacting to China with its manipulation of the Yuan. As the yen appreciated against the US dollar (appreciating means that the price and value of the Yen has increased against the US dollar), the US and the British were in fear that Japan “might intervene to curb the currency’s advance. The yen touched its strongest level against the euro since March 2002 on Wednesday” (Mutikani, 2010). For the US especially, the Japanese may change the trade of balance, which is the difference between exports and imports of the economy.
Debates on this topic has been heating up for several months now. What is ironic about international world economy is that if one country is in trade surplus, then there will be at least another in trade deficit (current account). According to a Nobel-prize winning economist, Paul Krugman, if China stopped straining the value of the yuan, then the economic growth of the world would be 1.5 % higher than it is currently. Yet China’s authorities have neglected the ideas of stopping what they are doing at the moment. Some even say that the country with the most power in the currency market is the US, but also the one having the most debts from the Chinese. As US is attempting to get their own message across through media, this may exasperate China and lead to severe consequences.
To strengthen your analysis, whenever you include a new piece of information, immediately follow with an implication. For example, when you introduce the quote on unemployment in the US, explain the connection to China’s currency policy. Remember to be precise with wording, especially since you’re dealing with at multiple currencies and multiple countries. Finally, use as many economic terms as possible e.g. opportunity cost, export, current account surplus.
Good luck!