China's Managed Float Why Do Term Paper

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(Hill, 2008, pg. 371)

Under what circumstances might a decision to let the yuan float freely destabilize the Chinese economy? What might the global implications of this be?

If the there is outside pressure from Western governments and Chinese trading partners. Where, they will begin to impose tariffs and duties in an effort to force the Chinese to change their policy. This would destabilize the Chinese economy, resulting in a collapse of their export markets. The global implications would be that this kind of action would result in China retaliating with tariffs and duties of their own, resulting in a worldwide depression. (Hill, 2008, pg. 371)

Do you think the U.S. government should push the Chinese to let the yuan float freely? Why?

Yes. The reason why, is because the inability of China to let the yuan float freely, is creating imbalances in the global economy.

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If this is allowed to continue, it could shift economic advantages in favor of China. As they have large currency reserves at the expense of the rest of the world.

Do you think the Chinese government should let the yuan float, maintain the peg or change the peg in some way?

Clearly, China needs to let yuan float freely. The reason why is because, the current policy is creating imbalances in the Chinese and world If this issue is not addressed, it could lead to a bubble possibly developing in the Chinese At the same time, the large trade surpluses that the county has are: creating anonymity among many of its trading partners. If the peg on the yuan is not eliminated, this will result in a trade war sometime in the future. Once this occurs, the world economy could fall into a severe contraction......

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