Currency Exchange Rates

China Currency Exchange Rate

The Global Debate On The China Currency Exchange Rate

China Currency Exchange Rate

The China Currency Exchange rate has been the subject of much discussion in recent years. The China exchange rate was recently dropped from its US dollar peg in favor of a basket of foreign currencies. Despite the removal of this fixed peg, China has been subject to increasing pressure from its trading partners to let the value of the Yuan float at a stronger rate to reflect the economic fundamentals. Many consider the current arrangement to be a source of unfair competition. This has set the world economic stage for considerable debate between US, Chinese and world leaders who have contributed their thoughts and official stance.

This pressure has come from finance ministers and central bankers for the Group of Seven (G7) who argue that the low Yuan exchange rate is providing a competitive exporting advantage to Chinese companies. With the rapid economic growth being experienced by China, the countries record trade surpluses is putting increasing pressure on the financial system and accelerating inflation. There have been calls for the Chinese leaders to respond by adopting the necessary economic reforms to rebalance the Chinese economy.

China Currency Exchange Rate

Since the fixed China currency exchange rate ended in July 2005, the Yuan has appreciated relative to the US dollar but this has not satisfied the concerns of foreign officials. Many US lawmakers have travelled to China with a few to persuading Chinese officials to adopt a more flexible stance. China is reluctant to act too quickly for fears that any change in policy will have an adverse affect on domestic economic conditions. Officials from the US have grown increasingly concerned by China's inaction prompting calls for trade sanctions on Chinese goods. This prompted a rebuttal by Chinese officials who threatened to dump a large portion of their US foreign reserves putting downward pressure on the US exchange rate.

China's action in relation to the Renminbi exchange rate suggests that Chinese officials are committed to a more gradual floating of China's exchange rate but this will most likely come in controlled stages as opposed to immediate implementation. This course of action would be consistent with Chinese official policy of responding in measured steps. This is consistent with statements made by senior Chinese officials who made statements at the recent APEC meeting in Coolum, Australia, that China will not follow "others words' on Yuan reform. The challenge, reiterated by Jin Renqing, is to maintain good momentum in Chinese economic growth whilst implementing self initiated, controllable and gradual reforms.

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