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Why can China keep its currency, the yuan, artificially low?
is there an agreemnet between the countries?
other currencies are at the marcy of the market. japanese yen has been buying , rose by 50%, which definitly hampered their economic growth, its economy is still at the bottom,
while china's econmy has been robust, because of its cheap labour, government's strong initiative, artificialy low currency. no wonder their products are competitive . why only China has been pampered ?
- 1 decade agoFavorite Answer
"Artificially low" is a view subjected to many debate. Those arguing "too low", wants to correct their massive domestic trade deficit ( E.g. US, buys too much Chinese goods. US product manufacturers would lobby for a stronger Yuan, so that their products do not loose out too much to the Chinese goods). They would like very much to see Yuan appreciate, but could not, because it it out of their control.
Nevertheless, if indeed Yuan is too low, it can be achieved because Yuan is under capital control, pegged to a undisclosed basket of currency (mainly USD ), cannot not be freely traded in the international market, thus removing the free market force. On top of that, China holds enormous amount of foreign reserve, which can be used to smooth fluctuation in RMB's demand, maintain RMB "manged float" within the desired band of exchange rate.
- cauleyLv 44 years ago
Why is this troublesome? Low Yuan forex evaluation is solid for Chines exports and undesirable for US exports. How does China save its forex low? China has kept the Yuan undervalued relative to the U. S. dollar via shopping for money from the open marketplace.
- Anonymous1 decade ago
What's your rationale behind the "keeping artificial", any data, economic theories to support your claim? Do you know by and large exchange rate is based on supply and demand also for free float currencies, and that many developing countries, not only China but India, most S E Asian and African countries do not have free float currencies yet.
- flingebuntLv 71 decade ago
Countries can exchange their currencies as they feel fit. Many countries, especially small south pacific countries, peg their currency against another currency, usually US dollar or Australian dollar.
Argentina pegged its currency higher against US dollars than it was worth, making imports cheap, exports expensive and ruining their own economy in the long-term.
China is keeping its currency artificially low.
They can decide the rate, and then it is up to other people as to whether they want to buy, sell or ignore it. There is no agreement. It is a market, and the US can choose to do business with China or not.
Greedy western countries liked China's low currency because they could invest easily in China. So while I think it is unfair for China to make its currency low, the real blame lies with greedy western capitalists.
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- 1 decade ago
If the Chinese yuan is valued low, then that's a good for American and European consumers. It means that products they buy from China are less expensive, so they can buy more. Walmart, Tesco, and Carrefour are full of reasonably priced products from China. If the value of the yuan goes up, then prices for just about everything will go up in America and Europe. If the yuan goes up 50%, then the price of everything at Walmart will go up 50%. Do you really want that to happen?