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China economics exchange rate. Why do top US economic officials, such as
Fed Chair Alan Greenspan and Treasury Secretary John Snow ...
... Lung, R. “Foreign Banks’ New China Strategy,” Asia ... Milton, “The Case for Flexible
Exchange Rates,” Essays of Positive Economics, University of ...
... is influenced by the expected future exchange rate. Economics 5th Edition, D McTaggart,
C Findlay, M Parkin. Pearson Education Australia. Printed in China 2007 ...
... In economics, purchasing power parity (PPP) is a theory which ... foundation for all
PPP estimates for China is weak ... is mainly affected by the exchange rate and not ...
... A pegged exchange rate is one which is legally determined ... A fourth fact presented
is that China has had some ... By using supply-side economics (which is defined as ...
Submitted by pesfan9 on May 22, 2008
Category: Social Issues
Words: 1769 | Pages: 8
Views: 62
Popularity Rank: 101,018
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Why do top U.S. economic officials, such as Fed Chair Alan Greenspan and Treasury Secretary John Snow, want their Chinese counterparts to revalue the yuan (renminbi)? American officials and a wide range of American economists argue that the yuan is undervalued vis-Ã -vis the U.S. dollar (to which the yuan is pegged at a rate of approximately 8.28 yuan per dollar). The basis for their argument that the renminbi (RMB) is undervalued is the very large trade surplus that China has with the United States and the concomitant buildup of dollar based asset reserves of China's central bank, the People's Bank of China (PBOC), and other financial institutions. China has accumulated about $350 billion in foreign-currency reserves and over $122 billion in U.S. government bonds. In other words, China is using its trade imbalance with the United States to become one of the biggest creditors to the U.S. government (although this is only possible because the U.S. government is currently suffering from a form of ADD -- American Deficit Disorder). This mutual dependence creates unique financial risks for the United States and provides the Chinese government with a significant amount of leverage over the U.S. government.
And there's the rub. This is why the trade imbalance is a problem. Indeed, Japan and Germany have had a similar relationship with the United States, using a trade imbalance as the basis for accumulating U.S. government bonds and then using their bond holdings as a lever to "encourage" the U.S. government to take policy stands that were more to their liking. Japan's central bank still holds more U.S. government bonds than any other non-U.S. institution and the total value of Japanese institutional holdings of U.S. government bonds are more than three and a half times those of China, indicating a much longer-term drain of dollars from the U.S. to Japan than anything yet experienced between the U.S. and China. If for some reason the Japanese central bank...
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