China currency dispute: is a rise in the yuan inevitable, necessary or desirable?
AbstractChina-bashing has become a popular media and political sport. This is largely due to the U.S. trade imbalance and the belief, by some, that China is responsible for it because it manipulates its currency to hold down the dollar prices of its goods, unfairly creating a trade advantage that has contributed to the loss of U.S. businesses and jobs. This paper reviews the problem of the large trade imbalance that the United States has with China and its relationship to Chinese exchange rate policy. It examines the link between a Chinese renminbi appreciation and the trade balance and also whether a generalized dollar decline could solve the global or Chinese U.S. trade imbalance. The consensus view explained here is that a renminbi appreciation is not likely to fix either the trade imbalance with China or overall. Though these perceived benefits of a managed float are small or non-existent, perhaps they should be pursued anyway because of small costs or even benefits for China. Section IV looks at the costs of a managed float in terms of the benefits of the earlier peg. Opponents of a fixed dollar/yuan exchange rate ignore the costs of a managed float for China, especially with limits on currency convertibility. These costs are outlined here in order to provide an economic basis for the earlier fixed rate and China’s reluctance to appreciate. Finally it is suggested that the necessary convertibility on capital account, toward which China is moving, could easily result in yuan depreciation under a floating rate regime. This is hardly the end that China critics have in mind and it is not one that would improve U.S. or other trade imbalances with China.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 5366.
Date of creation: 18 Jul 2007
Date of revision:
exchange rate policy; China; currency manipulation; current account imbalance;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-CBA-2007-12-01 (Central Banking)
- NEP-CNA-2007-12-01 (China)
- NEP-IFN-2007-12-01 (International Finance)
- NEP-MON-2007-12-01 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007.
"The Overvaluation of Renminbi Undervaluation,"
CESifo Working Paper Series
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- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," NBER Working Papers 12850, National Bureau of Economic Research, Inc.
- Yin-wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," Working Papers 112007, Hong Kong Institute for Monetary Research.
- Meixing Dai, 2011.
"Motivations and strategies for a real revaluation of the Yuan,"
Working Papers of BETA
2011-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
- Tatom, John, 2008. "Imbalances in China and U.S. Capital Flows," MPRA Paper 11706, University Library of Munich, Germany.
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