Chinese Yuan

Topics: Bretton Woods system, Monetary policy, Balance of trade Pages: 1 (724 words) Published: February 6, 2013
Andrea Cintulova
Provide a comment on the article “Europe must look east on the euro” in view of the two articles on this subject published this year. Articles: Until 2005, the Chinese yuan was pegged to the US dollar. It was allowed to float in 2005, however since then, the rise (appreciation of yuan) was not as big as expected and according to many economists, Chinese authorities were manipulating the currency, keeping the value artificially low in order to maintain export levels high (appreciation of yuan would make Chinese goods more expensive for foreign countries). Thus China’s current account surplus continued to soar. As the financial crisis started in the US at the end of 2007, due to the close relationship between US and China, China was going through the deepest contraction in trade since WWII. In order to boost exports, China adopted currency freeze against the US dollar in July 2008 (keeping yuan pegged around 6.83 per dollar). Despite this action, Chinese exports continued to decrease (although in a more moderate way comparing to expected decrease without currency peg), because US imports were decreasing as well. This caused a shrink of the Chinese trade balance surplus by 34% in 2009. As the crisis continued, US’ current account deficit was increasing and the US’ trade gap with China was contributing to it (sending money abroad instead of keeping it at home). In order to boost GDP and job creation, American lawyers called for an action against China’s unfair trade practices. In 2010 president Obama spoke harshly about China’s economic policies, saying that China manipulates its currency, increasing the pressure for action on the yuan. Later in that year, the World Bank issued a report calling the yuan overvalued. The Chinese government has...
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