Monday, December 12, 2011

What are the implications of China devaluing its currency?

Why is America getting so upset about the possibility of China devaluing its currency? Is it really that bad? Surely it will help countries that import goods from China?|||Taking the perspective of a US consumer, if China devalues the rimmibi then the exchange rate $/Rim will appreciate. This means that Chinese goods will be cheaper for us to buy, however this is not the pressure china's currency is undergoing. The Rim is under pressure to let is currency appreciate (Rim/$), meaning this will make Chinese goods more expensive. The reason why is that China peg is artificially lower making their goods more competitive.





This discussion has been going on for a long time. Since it started, China has had increase worries about inflationary pressure inside there country. If you keep you goods artificially cheap visa vis an exchange rate regiem then prices inside your country will rise. The Chinese government has stated that it is increasing worried about inflationary pressure inside the county.





Devaluing the currency now would only make the problem worse, china must appreciate the rimmimbi in order to steam off inflation.

No comments:

Post a Comment