China Currency Dispute
The China Currency Dispute has been a problem since the early 1990s. Over time, it was underplayed, and many nations did not see it as much of a problem. This was the case until after 1020 when most of the world’s economies were trying surviving the 2008 financial crisis. Most of these leading economies and nations like the United States felt that China was undervaluing its currency. The Chinese government through Wen Jiaboa refused these claims and stated that the Yuan was not in any way undervalued but was set according to a managed market-oriented approach to float exchange rates. This brought a lot of attention from world leaders and especially in the Europe. Each of the very vocal leaders was all trying to create opportunities to restore their economic wellbeing. This would give them an upper hand in the job creation and international trade policies. This begs the question whether there was a problem with China’s currency or was this just a counter move from nations that felt that their economy was under threat because of Chinas actions? By undervaluing its currency, China was just creating some advantage for itself in the competitive world market.
China has some set goals that it is trying to achieve by fluctuating its currency. However, this also puts it in a dilemma as it tries to balance the needs at home and abroad. Nations like the US want the currency to move freely according to the market. The last time China undervalued its currency, the Central Bank moved the currency further down with 1.6 percent. This was a major setback to those working in China. Their wages were unfair compared to the dollar. Undervaluing, however, created a competitive stand for China in the global economy. Since their currency was lower in value, they exported more and created more jobs in the production industries. But because of the undervalued and weak value of the currency, it is difficult for China to compete favorably with other countries in the labor-intensive manufacturing industries. These are some of the issues creating a conflict in the China currency.
By devaluing its currency, many companies want to relocate to China. The production cost is cheaper. However, the foreign countries sell their goods in foreign currencies. This will place China in the central position in the international trade. They will, however, not benefit much from it as most of the money is repatriated back to other countries that own these industries.
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