Yes, we showed them the way... We buy their trinkets at WalMart & then they turn around and start buying our core...
Oh, but wait, we are supposed to be a high-tech information/service society, no more need for them pesky heavy lifting jobs...
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Exchange rate of the dollar vs. the renminbi:
Since 1994, the policy on currency has been to informally peg the value of the renminbi against the value of the United States dollar. This policy was praised during the Asian financial crisis of 1998 as it prevented a round of competitive devaluations.
In 2003, this policy came under criticism by the United States. The fall in the value of the dollar caused the value of the renminbi to fall also, making Chinese exports more competitive. This led to some pressure on the PRC from the United States to increase the value the RMB in order to encourage imports and decrease exports. This is a policy that some feel would preserve manufacturing jobs in the United States. The G7 and European Union are also in favour of a re-evaluation of the exchange rate.
The Chinese government has resisted pressure to increase the value of the RMB, out of concern that it would cause Chinese jobs to disappear and would also expose domestic banks to currency risks that they are not prepared to handle. The belief, which is held by many economists, is that only fixed exchange rates or floating exchange rates are stable over the long term, because a one-time change in exchange rates might cause speculators in the future to take positions on possible exchange rate fluctuations which would lead to pressure to completely float the currency.
The Chinese government has also claimed that, while the PRC runs a large surplus with respect to the United States, its overall balance of payments is not out of balance.
Some independent analysts conclude that Chinese currency is undervalued, because the People's Republic forbids citizens from moving their currency abroad. If this sort of financial diversification were allowed, the massive outflow of yuan could have a substantial effect on the currency.
Within the United States, the issue of appreciating the RMB is also controversial. Producers of manufactured goods and textiles are in favor of appreciating the RMB. However, many American companies, such as aerospace companies, computer manufacturers, discount retailers, and other companies that depend on Chinese factories to supply inexpensive products and components, are against appreciating the RMB. Furthermore, many economists have pointed out that manufacturing jobs have been declining in the United States for decades. Some people have suggested that blaming the lack of job growth on the value of the RMB is merely a convenient misdirection on the part of the vested interests, including the George W. Bush administration, inefficient businesses and labor unions, fearful of competition.
The financial consequences of free valuation are complicated. Many economists believe that appreciation of the yuan would cause the Chinese government to buy fewer United States treasury bonds, causing bond prices to fall and bond yields to rise, hampering improvement in the U.S. economy. The ensuing depreciation of the US dollar might price oil out of the reach of the american economy, causing stagflation, a collapse of US oil dependant industries, massive unemployment and other dire economic consequences. |
