Question

The Chinese government stands accused by many in the US of having an exchange-rate regime that favors China.

After completing adequate (electronic-based) research on the above topic, post your response to the following questions in this forum:

Is there any truth to this charge?

Whatever the case (true or not), are there any adjustments that should be made by China or the US regarding the rate of currency exchange between the nations?

Explain your position.

Answer 1

The currency of China named as Chinese Yuan has been pegged for the long period of time against the US dollar. Here, the value of Chinese Yuan is pegged by more than 35% lower than the actual value that has given China an unfair advantage in the world export market. China had been the emerging player as a major exporting nation when the Chinese economy was making transition from the command system to the open market based system. By the year 2005, China strongly pegged its currency so that its export will be cheaper in comparison to the US export and USA suffered and lost the market. It is the reason that people in the USA say that China has taken unfair exchange rate means to gain advantage in the international market. Though, the Chinese Yuan is now a floating currency within a narrow band of 8% of its value (under or over), but it has been done on an incremental basis and now, China has been an established economic power and leading exporter in the world.

In this regard, the government of China should do the following:

1. Chinese Yuan should not be pegged in any capacity to be on fair terms in the international trade.

2. China is one of the largest buyers of US debt. So, china has huge interests in the USA. As a result, China should make fair deals to develop trust with the country of USA.

3. China should compete on the basis of quality and competitive price, rather opting for the dumping of goods. It will attract the trade embargo against China, harming the Chinese interests.