Renminbi currency value

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Renminbi (yuan) for each dollar (USD) since 1981. Higher values mean a weaker renminbi

Renminbi currency value is a debate affecting the

floated currency and has become a source of trade friction with Western nations.[2]

Background

Main article: Renminbi

The renminbi was introduced in October 1949 after the Communists took power on the Chinese mainland and established the

People's Republic of China.[3] Since the Chinese economic reforms of 1978, China has become the world's biggest exporter, second largest economy and biggest manufacturer in the world.[4][5]

For most of its early history, the renminbi was

pegged
to the U.S. dollar at ¥2.46 per USD (note: during the 1970s it was revalued until it reached ¥1.50 per USD in 1980).

Its value gradually declined as China embarked on a new economic course during Deng Xiaoping's leadership and transformed into a more market-based capitalistic economy.[6][7]

Since 2005, the Chinese government has overturned its previous policy of pegging the Renminbi to the US dollar. The renminbi now floats within a small margin compared to a basket of currencies selected by the Chinese government.

2007-2008 global financial crisis
, the renminbi was unofficially repegged to the US dollar. It was again depegged from the dollar in June 2010.

After 2010, the exchange rate floated in line with fundamentals,

PBOC) let the renminbi fall over 2% in three days to the lowest point since 2008 as it was hit by strong sales after threats of further USA tariffs.[12]

International consequences

Prominent economists including

Fred Bergsten,[16] and Cornell University Professor Eswar Prasad[17]
have repeatedly stated that China's currency is undervalued.

Peterson Institute of International Economics study said in 2010 that the yuan was 20 percent undervalued versus the dollar.[18]

An undervalued currency causes serious problems and international criticism.

  1. As a member of the WTO and IMF, China's undervalued renminbi would violate Article XV(4) of the General Agreement on Tariffs and Trade Article 1, and 3[19] of the WTO Agreement on Subsidies and Countervailing Measures,[20] and Article IV Section 1 of the IMF that prohibiting countries from currency manipulation.[21] However, the USA Treasury in 2018 cleared China from the accusation of currency manipulation.[22]
  2. The trade dispute with the U.S. would be worsened by an undervalued renminbi.[23]
  3. An undervalued renminbi could cause
    foreign reserves, already the world's biggest, soared to $2.8 trillion at the end of 2010. In order to buy foreign currencies, the government has to print the RMB "at a furious pace" and therefore incur inflation.[24] However, between 2012 and 2019, China's inflation has been reported to be persistently low, around 2%.[25]
  4. An undervalued renminbi would contribute to very large portfolio foreign capital inflows, motivated by expectations of quick appreciation, adding pressure for the currency to rise.[26]
  5. An undervalued renminbi would undermine domestic consumers' purchasing power when it comes to goods from outside the country. An undervalued currency makes foreign goods more expensive in terms of yuan.[27][28]

Chinese domestic discourse

Chinese economic reforms in the late 1970s propelled the Chinese economy from a closed centrally planned economy to one opened to foreign investments and capital, oriented to manufacturing of electrical goods, textile, toys and exports. This[citation needed] has allowed China to become a creditor country in relations to current accounts and the largest in terms of foreign reserves
.

China maintains that the value of the renminbi is market-driven. China says that its population receives high savings from the structure of the economy, and that gradual increase in domestic consumption is important for its own growth.[29] While the Chinese have argued that their exchange rate is purely a domestic policy matter, economists have begun to suggest that Chinese policy will soon shift to accelerate appreciation of the Yuan in order to reduce domestic inflation and to increase the wealth of Chinese citizens.[30]

Others in China[

unequal treaties[32] signed after the Boxer Rebellion and the First and Second Opium Wars.[33]

References

  1. ^ "US House passes China Currency Sanctions Bill". BBC. September 29, 2010. Retrieved April 15, 2011.
  2. ^ Simon Kennedy; Eunkyung Seo (October 24, 2010). "G-20 Pledges to Avoid Devaluations in Push to Defuse Global Trade Tensions". BLOOMBERG L.P. Retrieved October 26, 2010.
  3. ^ Stephen C. Thomas (2006). "China's Economic Development from 1860 to the Present: The Roles of Sovereignty and the Global Economy" (PDF). Forum on Public Policy. Retrieved October 26, 2010.
  4. ^ Rachman, Gideon. "China can no longer plead poverty". The Financial Times Ltd. Retrieved October 26, 2010.
  5. ^ Associated Press in Tokyo (August 16, 2010). "China overtakes Japan as world's second-largest economy". London: Guardian News and Media Limited.
  6. ^ CHANG, Gene Hsin (May 3, 2006). "Estimation of the Undervaluation of the Chinese Currency by a Non-linear Model" (PDF). Retrieved October 26, 2010.
  7. ^ Knowledge@Wharton (July 7, 2010). "China's Renminbi Revaluation: Small Step, Big Impact?". Wharton School of the University of Pennsylvania. Retrieved October 26, 2010.
  8. ProQuest 236659652
    .
  9. ^ English.news.cn. "Chinese vice premier talks economy with U.S. treasury secretary". Xinhua News Agency. Archived from the original on October 27, 2010. Retrieved October 26, 2010.
  10. ^ a b Krugman, Paul (August 5, 2019). "Trump's China Shock". The New York Times. Retrieved August 6, 2019.
  11. ^ "U.S. Labels China a Currency Manipulator, Escalating Trade War". www.bloomberg.com.
  12. ^ a b Winni Zhou; David Stanway; Cheng Leng; Yawen Chen; Andrea Shalal (August 6, 2019). "China media says U.S. 'destroying international order', after currency-manipulator branding". Reuters.
  13. ^ "WTO's Lamy says worried by currency interventions". Reuters. October 30, 2010. Archived from the original on May 21, 2023. Retrieved May 21, 2023.
  14. ^ Bernanke, Ben (November 19, 2010). "Rebalancing the Global Recovery". Federal Reserve. Board of Governors of the Federal Reserve System. Retrieved April 9, 2018.
  15. ^ Paul Krugman (March 14, 2010). "Taking on China". New York Times. Retrieved April 15, 2011.
  16. ^ "China's yuan value hits U.S. economy, two experts say". The Washington Times LLC. March 15, 2010. Retrieved April 15, 2011.
  17. ^ "Prasad Says China Should Allow Some Degree of Yuan Gain". Bloomberg Inc. February 8, 2011. Retrieved April 15, 2011.
  18. ^ Simon Kennedy (November 9, 2010). "China Yuan Undervalued by 20% Versus Dollar, Peterson Study Says". BLOOMBERG L.P. Retrieved March 3, 2011.[dead link]
  19. ^ "THE GENERAL AGREEMENT ON TARIFFS AND TRADE" (PDF). WTO. Retrieved April 15, 2011.
  20. ^ "Subsidies and countervailing measures". WTO. Retrieved April 15, 2011.
  21. ^ "Article IV - Obligations Regarding Exchange Arrangements". Retrieved April 15, 2011.
  22. ^ "China not a currency manipulator according to U.S. Treasury's..." Reuters. October 12, 2018. Retrieved August 5, 2019.
  23. ^ Joe McDonald (May 20, 2007). "Value of yuan likely to dominate U.S.-China trade talks". New York Times LLC. Retrieved April 15, 2011.
  24. ^ Keith Bradsher (January 11, 2011). "Chinese Foreign Currency Reserves Swell by Record Amount. The New York Times". The New York Times. Retrieved April 15, 2011.
  25. ^ Daniel Moss (March 11, 2019). "Don't Underestimate China's Low-Inflation Headache". Bloomberg. Retrieved August 5, 2019.
  26. SSRN 578903
    .
  27. ProQuest 614066381
    .
  28. ^ Garnaut, John (October 25, 2010). "Wave of change to hit China's economy". The Sydney Morning Herald.
  29. ProQuest 250258913
    .
  30. ^ Will the Yuan Rise? The Chinese Story. June 8, 2011. Archived from the original on December 21, 2021.
  31. ^ Huang Shuo (October 1, 2010). "How China will break US ring-fence". chinadaily.com.cn. Retrieved October 26, 2010.
  32. ISBN 978-0-618-07725-0
    . Retrieved October 26, 2010.
  33. ^ Lourie, Richard (October 25, 2010). "Bullish on the Bear". The Moscow Times. Retrieved October 26, 2010.
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