China steer new course on the Yuan.
China has announced that it will removed the peg of its currency on the USD and will create a managed floating exchange rate, despite the strong opposition from export lobbyist in the country. This is a very positive news because it shows that China is making efforts to contribute for the global economical recovery. Also, making its currency more flexible, will also help China develops its consumerism. China has been growing with tremendous speed and the inflation has become an important factor. By letting the currency naturally appreciate, the government will be able to fight off inflation and also will help increase the domestic income which is important for the development of domestic market. There are of course many risks related with the appreciation of the Yuan. An example is Japan, who in 1985 agreed to a "major appreciation of the Yen against the dollar." As a result a long economic slump followed in later years. (WSJ) What China has to do is be very careful with the appreciation of the Yuan and create time for exporters to react. In my opinion, the appreciation of the Yuan would be positive for China, not only because it will benefit the consumers but also will make producers more competitive and efficient. This measures will further open up the economy of China and will ultimately benefit the global economy as a whole.
Luong T. Hai
Summer Analyst
Analyze Capital LLC
The Day of reckoning has finally come.
ReplyDeleteVery sound argument. I followed your thought Process Easily. Also, You do bring up a Great example of Japan in 1985. The Chinese Monetary policy makers are entering uncharted waters. It is difficult to apply micro-economic experimentation to a macro-economic problem.
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