...China Yuan Affect on the United States and a Dollar The United States dollar is listed as one of the top ten most sought-after currencies in the world. Over the last century, the U.S. dollar has begun to depreciate in the trading industry, which has enabled China's yuan to gain a higher percentage in exchange rate. In June 2010, China adapted an enhanced more flexible exchange rate policy. After the policy was introduced the yuan value rose 0.8 over the United States dollar. The exchange policy positioned the nation to allow the exchange rate to appreciate over the next 10 to 15 years. The yuan RMB = 8.73 of a dollar. In 2010 the China trade surplus was predicted to reach $200 billion. If China's exchange rate continues to gain value, what does this mean for the United States and other countries that trade with China? How will the increased value affect the United States balance of payment to China? If China continues to leave the value of yuan low, the dollar will continue to depreciate. China holds the world largest foreign exchange reserves, and is considered one of the top trade surplus nations. As the country continues to export products to other nation's increases, the yuan exchanged rate will rise. The yuan is so undervalued in the United States market causing American job's loss, raising economy, and a record bilateral trading gap. China has made steps towards increasing the value of the yuan. However; the nation is moving towards developing infrastructure with the...
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...Stephanie Wicks-Franklin International Economics Research Paper Instructor Stephen L. Crain Wednesday, August 23, 2014 The US and China “A Marriage Made in Renminbi-Yuan” The United States presently in a tightly knit and powerful economic relationship with China. Reason being the US economy depends heavily on foreign capital, in particular the Renminbi-Yuan. According the US Treasury report as of September 21, 2014 the total debt for the United States was at a staggering $17,752,082,587,972.00, this is almost eighteen trillion dollars. With foreign governments and investors holding roughly half of it and China’s holds the largest portion thereof at $1.268 trillion, which is only slightly down from $1.279 trillion in 2013. Chinas investment in the US is a smart move on their part because doing so keeps the value of the dollar relatively high in comparison to the Renminbi-Yuan. Using this very simple it would make China’s exports to the US appear more affordable. This fundamentally helps, China’s the trade driven economy grow. According to the latest numbers provided they the United States Census Bureau as of July 2014 U.S. trade in goods with China are as follows the US exports approximately $9,288,200 and China imports $40,151,300 leaving a trade deficit of roughly $30,863,000 and the current total for the year being an incredible $186,079,900. In an article written for the Wall Street Journal, in September 2014 titled China's Trade Surplus Hits New High ...
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...TRAINING MAGAZINE ON BANKING SCIENCE AND TRAINING INTERNATIONAL EXPERIENCE AND PRACTICE | REASON AND IMPACT OF INCREASE IN CHINESE YUAN VALUE OF CHINA NGUYEN XUAN HONGBanking Academy | | After much pressure on Chinese Yuan (CNY), China made decision on increase in their currency in 6/2010. How will this increase impact on relevant objects? This article aims to find reason and impacte of increase CNY value of Chine on Chinese economy and other countries, including Vietnam | be carefull on exchange rate policy to avoid impact on export. According to economic researcher , adjustment on CNY value may cause instability in Chinese economy due to encouraging investment, increasing independence of economy on external factor, especially when 50% of export comes from foreign-invested enterprises in current. This is contradiction that shall be considered when selecting exchange rate. | 1. CNY exchage rate development before and after increaseValue from 2005 to the date before 21/06/2010: CNY value increased due to application of margin transaction measure, holding CNY to USD rate at CNY=6.83 from 8/2007 | Besides achievement of economic growth, which partly thanks to current exchange rate policy, China also has to deal with many challenges. Since 1998, China has spent 200 billion USD to refinance and buy doubtful debts of banks. China is dealing with instable finance but Chinese Government still | | Source: Reuters Source: Reuters Source: Reuters Source: Reuters ...
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...Financial Markets & Institutions Group Assignment Yuan Devaluation Group 2 Group Members Kouadio Dieudonne XPGDM-18 Rohit Khandelwal XPGDM-28 Shruti Tibrewal XPGDM-32 COUNTRY AT A GLANCE Population | 1.364 billion | 2014 | GDP | $10.35 trillion | 2014 | GDP growth | 7.3% | 2014 | Inflation | 2.0% | 2014 | CHINA Economic Overview The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second largest economy. In 1978—when China started the program of economic reforms—the country ranked ninth in nominal gross domestic product (GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of USD 9.2 trillion. Since the introduction of the economic reforms in 1978, China has become the world’s manufacturing hub, where the secondary sector (comprising industry and construction) represented the largest share of GDP. However, in recent years, China’s modernization propelled the tertiary sector and, in 2013, it became the largest category of GDP with a share of 46.1%, while the secondary sector still accounted for a sizeable 45.0% of the country’s total output. Meanwhile, the primary sector’s weight in GDP has shrunk dramatically since the country opened to the world. China weathered the global economic crisis better than most other countries. In November 2008, the State Council unveiled a CNY 4.0 trillion (USD 585 billion) stimulus package in an...
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...The Yuan vs. the U.S. Dollar Over the last few years, the economy of China has grown at a considerably high rate averaged at nearly 10% annually. Due to this enormous growth, China now influences the economy of virtually every country all over the world. This is more apparent and frightening, considering the United States’ economic relationship with China. Until 2005, China pegged its currency to the U.S. dollar, but as from July 2005, it linked its currency to other currencies rather than dollars and let its currency appreciate by 2.1%. The central bank of China did this by buying and selling the dollar dominated assets in exchange of printed Yuan in order to eliminate excess supply or demand for the Yuan. Due to this, the exchange rate between the dollar and the Yuan, basically, remained constant irrespective of changes in economic factors which could have otherwise destabilized the Yuan relative to the dollar. Since these reforms, China has continued manipulating its currency to its advantages, such as giving exporters an unfair trade advantage. This paper will provide an analysis of China’s Yuan against the U.S. dollar for the past 5 years ending in 2010. Also, the exchange-traded fund (ETF) of Yuan is discussed in depth. Recently, the U.S. policymakers had been having debates over China’s currency policy. The policy adopted by China has been linked to the rapidly growing United States’ trade deficit with China and the decline of employment in the U.S. and the emergence...
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...The Yuan: The Future Value of RMB Under the Economy of the World Shanghua Chi AWB Introduction From whatever point of view, economic growth is always the most crucial factor in deciding the value of currency for a country. In China, one of the biggest developing countries, the appreciation of the RMB has risen by 28% since 2005, and it has been close to 4.5% growth per year. (Chinese Yuan, 2011) The question is what is the future of RMB? Will it continue in a rising trend? What things can be affected by the change of currency value? In general, the currency value will change when the relation between supply and demand is becoming different. “A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply.”(Exchange rate, 2011) However, answering to these questions involves more complicated aspects: world trading situation, inflation level, and unemployment rate. There is an interactive relationship, which exists between these aspects and the exchange rate. Therefore, to predict the target value of RMB is extremely important for running China. Combined with current reports and researches, I came to a conclusion that the predicted value of RMB should not rise dramatically, and is better to keep the present value. Opposing position The opposing point is that the value of Yuan should rise up. There are broad concerns among economists on a global scale...
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...October 2010 Research China Fighting a defensive war In the militaristic language of the currency war, important battles are looming ahead in connection with the G20 meetings. China will, in our view, be fighting a defensive war and will make a tactical retreat in order to avoid a devastating war that it might have to fight alone and where everybody loses in the end. Hence, China will probably maintain current momentum in the appreciation of the yuan in the coming months to convince its G20 partners that it is fulfilling its promise from the previous G20 meeting to gradually increase the yuan’s ‘flexibility’. The outcome of the G20 meetings is unlikely to be a comprehensive agreement with a firm commitment from China and other Asian countries to let their currencies appreciate in a co-ordinated fashion, even though this would be the most positive outcome for the global economy. The current inflation in China and the weak US dollar suggest that China will let the yuan appreciate by about 7% annually. We expect a large part of this appreciation to be front-loaded in the next three months to maximise the political payoff for China. The market currently discounts a 3.5% appreciation over the next 12 months. Hence the appreciation pace of the yuan is expected to be substantial in the coming months. It will probably be enough to ease political tensions between the US and China and will prevent punitive legislation against Chinese imports. With China expected to maintain the...
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...the Chinese government originally pegged the value of the yuan against the U.S. dollar? What were the benefits of doing this for China? What were the costs? The U.S. dollar was the strongest in the global market. The benefits for China were that their yuan would stay weak, their exports would remain cheap, and their economy would thrive on production for the U.S. economy. The costs for China were that they had to exchange for U.S. dollars every month and that their exchange was the U.S. deficit. Over the last decade, many foreign firms have invested in China and used their Chinese factories to produce goods for export. If the yuan is allowed to float freely against the U.S. dollar on the foreign exchange markets and appreciates in value, how might this affect the fortunes of those enterprises? The enterprises would have to pay the factory workers more money. It might not be worth exporting the labor. How might a decision to let the yuan float freely affect future foreign direct investment flows into China? China’s FDI would suffer because countries would no longer hire out China’s laborers. China would lose working contracts because country’s domestic labor would become more economical. Under what circumstances might a decision to let the yuan float freely destabilize the Chinese economy? What might the global implications of this be? The whole idea of keeping the yuan low in value on the global market is so that countries would...
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...Leah Schneider China: To Float or Not to Float Questions 1. What are the symptoms of an undervalued currency? Use this for the case of China in 2006. The symptoms of an undervalued currency are an increase in demand for that currency without a complementary increase in exchange rate. This is happening in China as companies locate themselves within China to take advantage of the favorable exchange rate. 2. What are the probabilities that the Chinese government will float and/or allow the fx rate to appreciate in the medium term? The probability that the Chinese government will float the Yuan is low. There has been very little organic, non-governmental movement of the Yuan in the past. The Chinese government has a history of keeping the Yuan low to encourage exports. They may in the medium term allow the Yuan to appreciate further than the 2.1% of July 2005. 3. What has changed since 2006 - present? The Yuan has appreciated since 2006 going from 8 Yuan to a dollar to 6.5 Yuan to a dollar, a rise of 20%. This has caused a rise in export prices and less of an advantage for China. 4. What would be the implications of an appreciation of the Yuan for ABB? The Yuan appreciating might be bad for ABB. They have a long term plan of growth and improvement for their Chinese facilities, which would now be more expensive. However, the appreciation is not all bad. ABB has 6% of its profits in Yuan and with the appreciation of the Yuan; this money would be more valuable against...
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...ago, China was said to be the most advanced nation in the world. Today, they are still much more advance than most of the countries. China was named by Europeans after the ancient Ch’in Dynasty of the third Century B.C. China continues to be the oldest civilization in the world today. China was the only from the world’s great civilizations to evolve from nearly total isolation from the rest of the world. The primarily result of this was geography: the sea to the east, the Himalayas to the south, the Gobi desert to the north and inhospitable deserts and high plateaus to the west. The Yellow river in China is said to be the source of the first Chinese culture and civilization. There are many different cultures located in China such as the Yangshao culture, Hongshan culture, and Yunnan culture. Ancient Chinese agrarian religion revolved around the worship of natural forces and spirits who controlled the elements and presided over rivers, fields and mountains. Shaman known as wu acted as intermediaries between the human and spiritual worlds and performed rites to insure good weather and harvests and keep evil spirits at bay. Even though China is regarded officially as an atheist state today, it has had an officially recognized religion since 2356 B.C., when science, religion, mythology and government were all linked together. Taoism and Confucianism began to take shape around the 5th and 6th centuries B.C. but evolved from religions that had been around in China for...
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...3 Case Study: Wal-Mart and the yuan debate Why is the value of the yuan so important? Wal-Mart’s business strategy relies on low production costs which it can pass on to its customers. If Wal-Mart were a country then it would be China’s eighth largest trading partner ahead of Russia, Australia, and Canada. Wal-Mart’s non-Chinese owned suppliers operating in China number nearly 5,000 and all of them benefit from a low valued yuan compared to the dollar. The 176 million worldwide customers of Wal-Mart also benefit from the low valued yuan. With nearly 70% of Wal-Mart’s products coming from China a sharp increase in the value of the yuan against the dollar can be devastating for the company as the increased costs for Wal-Mart and would most likely passed on to customers. It could also hurt American customers whom Wal-Mart claims it saves the average household roughly $2,500 dollars every year. (Peng, 2011) If you were the CEO of Wal-Mart and were preparing for a meeting with the most vocal members of the US Congress on China’s currency “manipulation”, what would you say to them? I would point out that while it may be politically easy to blame China especially when it comes to an uniformed electorate, the rise in costs associated with policies aimed at encouraging China to lets its yuan to appreciate against the dollar will do harm in other ways. Average Americans (also known as voters) will feel an appreciated yuan in their wallets. China may be an easy target, but the...
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...decade, China fixed its exchange rate to the dollar and bought or sold dollars to maintain the exchange rate. By early 2005 though, the country was feeling pressure both at home and abroad to let its currency, the Yuan, float freely against the dollar. [1]Why do you think the Chinese government originally pegged the value of the Yuan against the U.S. dollar? What were the benefits of doing this to China? What were the costs? Comments: Most of the Chinese exports are made from dollar-denominated imported materials and energy. By pegging to the dollar, China managed its foreign exchange risk in these areas. It also mitigated the risk for investors coming into China. Also, China’s economy, through its peg to the dollar, has remained stable. It was not drawn into the Asian meltdown in 1997. One of the costs of pegging is that the Chinese government has to manage the peg. Thus, it is active in the foreign exchange markets. Another cost is that the dollar’s movement, up or down, affects the Chinese economy. [2]Over the last decade, many foreign firms have invested in China, and used their Chinese factories to produce goods for export. If the Yuan is allowed to float freely against the U.S. dollar on the foreign exchange markets, and appreciates in value, how might this affect the fortunes of those enterprises? Comments: Since they are moving raw materials into China, using Chinese labor, and then exporting, their production costs will rise in China (Yuan strengthening...
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...China and the Esquel Group China and the Esquel Group In response to criticism of it pegging the Yuan to the US dollar, China recently implemented steps toward liberalizing its exchange rate policy; however, a floating Yuan has created uncertainty concerning its impact on China’s economy. While it is likely that allowing the Yuan to appreciate against the US dollar will result in undesirable impacts for China such as deflation, a reduction of foreign direct investment (FDI), and a decline in exports, we believe China will, and should, continue a tempered liberalization of its exchange rate policy. This is necessitated by the potential consequences China faces both politically and economically by not moving towards a floating rate. Politically, China will continue to absorb the majority of the blame for foreign countries’ rising trade deficits, spawning potential legislation dictating import quotas on Chinese products. Economically, a fixed exchange rate will continue to plague China by its dependence on exports and increase its risk of being able to maintain the value of its portfolio of foreign reserves, most notably the United States dollar. It is our belief that these risks outweigh the benefits of China continuing business as usual. As such, the Esquel Group should devise operational strategies that mitigate the risks of an appreciating Yuan, which include diversifying revenue streams by implementing a textile import division, pursuing growth in domestic textile...
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...1.0 Summary of the article It is not surprise to everyone that China has a major role in the global economy since its economic growth has moves the country into the ranks of middle income countries. Unfortunately, issues that China faced in most recently are whether it can contribute to the vigour of the worldwide economy and manage its internal stability. China's economy is now weakening and its GDP is perhaps below the government target of 7%. Investment sentiment is the weakest indicator, while the production level in China's industries has dropped which left surplus production capacity in the industries. Although China growth is slowing down, the probability that it will collapse suddenly is small. 2.0 Discussion The biggest problem in China is that the massive debt explosion is now threatening its entire economy, leading to a reduction in capital investment. There has been a boom in the Chinese stock market, yet buying share with borrowed money had magnified the fall when companies with huge debt begin to sell their investments to pay debts (Walker, 2015). Shanghai Composite Index decreased about 8.5% in August followed by China economy downturn which perhaps was the biggest decrease since 2007 (McHugh, 2015). Overreaction in Chinese market then affect the world such as Japan's Nikkei index had slipped by 4.6%, while the Eurofirst 300 index has had its worst day since 2009 (Matthews, 2015). However, falling of stock markets in itself will not cumber the global economy...
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...popular unit of RMB is yuan. 1 yuan equals 10 jiao, 1 jiao equals 10 fen. There are parts of China where the yuan is also known as Kuai and Jiao is known as mao. Chinese currency is issued in the following denominations: one, two, five, ten, twenty, fifty and one hundred yuan; one, two and fivejiao; and one, two and five fen. The current official exchange rate between U.S. dollar and Renminbi yuan is about 1:6.8 (1 US dollar = 6.8 yuan RMB). Since the economic reform started in 1979, the Chinese currency (yuan) had been devalued several times until 1994 when the two-tier foreign exchange system was ended. While the official rate of yuan had been maintained constant over seven years since 1998, the pressure on the revaluation of yuan intensified. It has been perceived by some economists that the yuan is undervalued on an order of 37.5%. There are two implications for a currency devaluation. First, devaluation makes a country's exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit. Thus, As China pursued its gradual transition from central planning to a free market economy, and increased its participation in foreign trade, the renminbi was devalued to increase the competitiveness of Chinese industry. What happened? For most of its early history, the RMB was pegged to the U.S. dollar at 2.46 yuan per USD (note: during...
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