Flexibility+of+The+Chinese+Yuan

=__**Flexibility of The Chinese Yuan Currency**__=

Background Information
China's economy is currently the third largest in the world, behind The United States of America (1st) and Japan (2nd). It is one of the world's fastest growing economy (having a mean growth rate of 10% per year over the last 3 decades; source: Wikipedia), with reports of double digit growth rates in 2010, alongside many other economies in Asia. As of now, China is the world's largest exporter and second largest importer of goods (2009 Exports went up to $1.20 trillion).

As a consequence, decisions and actions by China usually had and will continue to affect the global economy significantly.

The Chinese government has, for many years, controlled the value of the Chinese Yuan currency against other currencies, thus allowing their own economy to benefit from stable yet rapid growth rates and reduced vulnerability to foreign aftershocks.

However, the decision to control the Chinese currency raised the concern of many nations around the world, especially that of the United States of America. Many are now looking to China to revalue their currency, in which many people say is essential to global economic recovery. Chinese officials have stated recently during the G20 meeting with 20 countries with leading economies that it will only make changes to their currency policies in the interest of their economy. They have also mentioned that although China will allow its currency to appreciate, it will be done slowly and steadily so as to not risk jeopardizing their own economy.

For more information regarding China's currency and/or its economy, try the following sites:

 * Article on China's Currency || A page giving very detailed analysis of China's economy and its decision to stop a floating economy. ||
 * Wikipedia Page on China's Economy || A page by the free online encyclopedia, giving more information about China's economy and its history. ||
 * China's Currency: Economic Issues || A document with lots of information about China's currency and economic issues ||
 * Wikipedia Page on China's Currency || A page by the free online encyclopedia talking about China's renminbi currency in more detail ||
 * Policies Currently Implemented in China || A page analysing and rating the different policies implemented by the Chinese government ||

"If the yuan rises too rapidly, a lot of overseas investors might move their factories or companies out of China. That would increase unemployment and hurt our economy, and commercial banks could also face a difficult operating environment"

SUMMARY OF THE ISSUE
During the late 20th century period, China decided to implement a new currency policy to make the value of its currency stable (at around 1USD to 5-8 RMB). By not allowing the Renminbi to depreciate, the country prevented itself from returning to a dangerous situation similar to the hyperinflation period after the World War II.

In addition, the decision to disallow a free floating currency allowed China to benefit from their export led strategies; it resulted in many more firms and individuals investing in China. The intention is to mitigate the effects of unemployment in their economy by reducing it.

China's decision has led to complaints from various people around the world, including in America, where many American manufacturing companies have argued that the lack of currency revaluation has caused them to be at a disadvantage, and as a result allowing Chinese competitors to gain the upper hand in business.

Nevertheless, China will be slowly revaluing its Yuan currency, for reasons like, but not limited to:

 * Slowing down inflation rates, especially on foreign goods and services, in hopes that the economy will not overheat


 * Making imports cheaper for the Chinese people


 * Increasing the spending power of the Chinese people


 * A sudden large appreciation will increase agricultural imports, threatening millions of Chinese farmers that are already suffering from low wages


 * Slowing this process down allows their banking system to develop


 * A sudden appreciation will affect the country's GDP growth rates and unemployment rates

The question still remains: Should China raise its currency value further for the benefit of some? Or should China ensure overall currency stability

= **NEWS UPDATES!** =

August 7th 2010
This is great! I thought that the flexibility currency issue has almost been solved, but further research has shown evidence of possible complications and implications to make the Yuan more flexible. I have found an excellent web page that delves into the implications of a more flexible Chinese Yuan currency: Implications of a Flexible Yuan. Also, the BBC article on "Who Cares About The Yuan" gives a list of the "winners and losers" of the currency revaluation.

From the information that I have gathered, this is my hypothesis:
 * The USA will benefit from the flexible Yuan in the short term due to higher demand, but recovery will be very slow
 * European economies will benefit the least from this change in policy
 * Many fast growing Asian Economies such as South Korea, Malaysia and Singapore will continue to grow rapidly. Confidence is boosted due to China's change in policy, allowing the currencies' values to rise.

So the question remains: Should China continue what it is doing, revert back to its old policy or go for a new flexible yuan policy? Each option will benefit certain countries more than others.

July 22nd 2010== It seems as if the Chinese government is raising the value of its currency quite quickly. This may be due to international pressure or the economy's own problems, such as overheating of the economy.

The following are screen shots of the CNY currency put against other currency over a period of a year: (These graphs are from Google Finance) =**CNY to USD**= As shown above, the Chinese government has raised the value of their currency dramatically after mid June, probably to combat its inflation problem but possibly also to relieve international tensions **(though very unlikely).**

=**CNY to SGD**= Not much effect is seen on most of the Asian currencies. The graph above clearly shows that Singapore's currency has been fluctuating throughout the last 6 months, unlike the CNY:USD. However, it is clear that the revaluation of the Chinese currency has led to the rise in value of many of the Asian currencies, including the Japanese Yuan and the Singapore Dollar, particularly after mid June, as pointed out on the graph. As a matter of fact, thanks to China's shooting consumption rates, exporters like Singapore are benefiting tremendously, with exports to China soaring 39%. (Singapore's economy is currently growing by 19.3%, with an expected 13 - 15% annual growth)

As of now, this currency reform seems to benefit most, if not all economies. For more information on how, check out the Uncommon Wisdom Daily article on benefits to international companies.

July 9th 2010
China is indeed keeping its promises. They are slowly beginning to raise the value of the yuan. The graph below by Xrates shows that the Chinese yuan is increasing against the US dollar.

This is good news for many nations around the world, for this revaluation allows a more competitive global economy.

NOTE:
China may only have done this in order to solve or mitigate the effects of its own economic problems, not because of global pressure. Nevertheless, the Chinese government will not continue to raise the value of its currency, as this may spark social unrest as a result of increased unemployment rates.

June 28th 2010
There have been a lot of discussion going on between the 20 nations with the biggest economies at the G20 summit in Toronto, Canada. At first, China revealed that it will be revaluing its currency against the dollar, but later stated that there will be no significant changes in the currency value. The Global, Business and Economy sections of many News Sites have news articles regarding China's understandable reluctance to give in to international pressure.

Some of the more interesting articles include:
 * ===CHINA – G20 No solution to the yuan issue at the G20===
 * ===G20 - China may not be the saviour===
 * ===China will not 'bow down'===
 * ===Learning To Crawl===
 * ===Follow the Renminbi===