Currency Manipulation
Do you think that
China is Manipulating its Currency?
In my view,
china is manipulating its currency by devaluating the states currency that is
the Yuan. The devaluation of the Yuan boosts the country’s exports. The Chinese
products are thus as a consequence cheaper in dollar. China constantly prints
new money, which it uses to purchase the U.S Dollars. This money is also used
to purchase the U.S government debt making the market to be flooded with
Chinese Yuan (Killingsworth,
2014). The demand for the American dollar consequently increases. The major aim
of the Yuan manipulation is to promote export and economic growth. China also
attains this by pegging their currency against the dollar.
What does this mean to the U.S. Economy?
The China’s currency manipulation hurts the United States economy
since it creates wider trade deficit. The trade deficit has the effect of
degrading the dollar value. The manipulation of Yuen by the Chinese government
also cost the United States approximately 5.8 million jobs (McCauley, McGuire, & Sushko, 2015).
Should the United States attempt to force China to change its
Policy?
The Chinese has managed to make their exports more attractive
due to the devaluation of Yuan and thus, the United States exports become less
competitive since the value of Dollar is strong. The demand for the dollar
declines. It is for this reason that the United States government should compel
China to change its currency manipulation policy.
Critique to my Classmate Thoughts
The Chinese products are cheaper in the global economy due to
the undervaluation of the Yuan. I agree with my classmate’s line of thoughts
that the Chinese government needs to refrain from manipulating the exchange
rates since this may lead to instability in the global exchange rate (McKinnon & Schnabl, 2014). The exchange rate for any currency is
determined by the amount of exports against the country’s imports. The United
States government on the other hand has devised strategies of forcing the
Chinese government to abandon the currency manipulation policy, which includes
trade barriers.
References
Killingsworth, W.
(2014). Saving American Manufacturing: The Fight for Jobs, Opportunity,
and National Security. Business Expert Press.
McCauley, R.,
McGuire, P., & Sushko, V. (2015). Global Dollar Credit:
Links to Us Monetary Policy and Leverage. Basel: Bank for International
Settlements, Monetary and Economic Dept.
McKinnon, R., &
Schnabl, G. (2014). China’s Exchange Rate and Financial
Repression: the Conflicted Emergence of the Renminbi As an International
Currency. München: CESifo, Center for Economic Studies & Ifo Institute
for economic research.
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