Yuan v.s. the Dollar

Yuan v.s. the Dollar

Sam Ronneberg

Topic

How should the US handle Chinas refusal to devalue the yuan?

Why is it important?

United States and China vital trading partnersChina the Factory of the WorldChina fixed exchange rate (pegging): currency value is matched to value the US dollar.United States floated currency: currency value fluctuates according to foreign exchange market.Pegging Positives: Used to stabilize the value of a currency, makes trade and investments between the two countries easier and more predictable.Pegging Negatives: Chinas exports more competitive and cheaper, slowing the US recovery from the global recession. Also acts as a barrier to US imports making much more expensive.

What is our goal?

Our goal is to eliminate the pegging of the Yuan to the Dollar to give the US domestic market a boost to help recover from the recession.Domestic Production increasing with new employment.The United States can export to China more fairly.

Yuan and the Renminbi?

Yuan is the main unit of currencyRenminbi is the official name of the currencyExample: In England the name of currency is sterling but pounds is the main unit. You do not say that costs me seven sterling, rather you say that costs seven pounds. British pound equals a pound of sterling silver.

Past Relations

The Yuan came into force following the 1970s when the government opened the economy to foreign investments and was pegged to the dollar2005 the peg was lifted, but unofficially reinstated when the global financial crisis hit.In July, 2010 released a statement that they would continue to proceed further with reform of the exchange rate and strive to increase flexibility.

Solution 1

The first way you could handle the Currency War is to do nothing and hope China keeps its promise to revalue the Yuan. Positive: You do not sever any ties with China. Negative: Our domestic market will not improve and our recovery from the recession will take longer.

Solution 2

The second way to handle this is to put gradual pressure on China through economic reforms such as tariffs and build a coalition with other countries effected by the Currency War until revaluation.Positive: The US is acting multilaterally and does not look like a bully. If successful the United States domestic market improves, helping the recovery from recession.Negative: China may not act immediately and it could endanger our relations if economic reforms are to great.

Solution 3

The third solution would be to put immediate pressure and isolate China from trade through an economic blockade to force them into a revaluation. Positive: It would force China to act immediately. If successful the United States is successful in protecting domestic market.Negative: If fails the United States suffers greatly as China is a main trading partner and it could take a negative effect the global market

Recommended Solution

My recommended solution would to handle the situation through solution 2 by putting gradual pressure on China with help of a coalition of other nations.This prevents the United States from looking like a bully by collaborating with other countries.This would not greatly severe US-China relations.If successful, the United States domestic market improves and helps the US recover from the recession.The US can export more to China more efficiently.

Sources

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3. Batson, Andrew, Greg Hitt, and Hong Shen. "Yuan Rises to New High Against Dollar.." Wall Street Journal- Eastern Edition 255.144 (2010): n. pag. Web. 21 Nov 2010. .

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Sources

11.Xinzhen, Lan. "Rise of the Yuan.." Bejing Review 51. (2008): n. pag. Web. 21 Nov 2010. .

12."THE GREAT BETRAYAL: Learning to Speak Euro and Yuan in the Coming Post-Dollar World.." Kirkus Reviews 78.6 (2010): n. pag. Web. 21 Nov 2010. .

13. Peaple, Andrew. "Theory and Politics Don't Mix on Yuan.." Wall Street Journal- Eastern Edition 255.135 (2010): n. pag. Web. 21 Nov 2010. .

14. Kadlec, Daniel. "The Yuan and You.." Time 166.5 (2005): n. pag. Web. 21 Nov 2010. .

15. Schuman, Michael. "A Vicious Circle.." Time International (Atlantic Ocean) 176.18 (2010): n. pag. Web. 21 Nov 2010. .

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17. Peaple, Andrew. "Great Divide Of East-West Yuan Reality.." Wall Street Journal- Eastern Edition 254.111 (2010): n. pag. Web. 21 Nov 2010. .

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19. STEIN, Peter. "From Hong Kong, a Yuan Song.." Wall Street Journal- Eastern Edition 254.8 (2009): n. pag. Web. 21 Nov 2010. .

20. Walker, Marcus. "Will Dollar Overshadow Yuan at G-7?." Wall Street Journal- Eastern Edition 251.30 (2008): n. pag. Web. 21 Nov 2010. .