Yen for Yuan China Has Term Paper

Open, View, and/or
Download this Document

Total Length: 682 words ( 2 double-spaced pages)

Total Sources: 0

Page 1 of 2

Therefore, it is difficult to determine exactly how significant the depreciatin would be. As the dollar reaches fair valuation with the yuan, the impact would certainly be extraordinary as China loses its unfair price advantages to competing countries like the U.S., Europe, Japan and South Korea.

In order to maintain the same peg to the dollar that it has kept since 1996, China has been increasing its money supply to keep the value of the yuan low. China's money supply has risen from 19.6% in 2003 to 14.6%, a situation that can cause inflation as well as undesirable asset bubbles that would further present the risk of additional bad loans. These are already a problem as state companies and developers have racked up bad debt. If the Chinese government discontinues foreign exchange intervention, the yuan would certainly appreciate given the estimates of its signification undervaluation. However, yuan appreciation would not be a desirable outcome because China is trying to keep its unemployment low through cheap exports.

Stuck Writing Your "Yen for Yuan China Has" Term Paper?

View All Our Example Yen for Yuan China Has Term Paper

Have A Custom Example Essay Written

As a more viable alternative, China could relax its capital outflow policies by allowing overseas investments. Thus, China would not have to sell as much yuan to buy up foreign currency inflows which would help abate inflation.

While undervalued currency helps build a favorable trade balance, it does have a number of disadvantages such as the higher prices of imported goods and services that consumers must pay. and, Chinese tourists have to pay more when they travel abroad. China's undervalued currency is also a risk to its own economy as an expansion in the money supply to support it creates asset bubbles, problem loans and inflationary pressures.

If the yuan climbed to five to the dollar, the percentage gain to a dollar investor is: (0.20-0.1208) / 0.1208 or 65.6%. The old value of the yuan was 1 / 8.28 (.1208) and the new value is 1 / 5 (.20).

Relaxing currency controls and restraints on capital outflows would increase capital outflows and increase.....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Yen For Yuan China Has" (2007, January 20) Retrieved May 22, 2025, from
https://www.aceyourpaper.com/essays/yen-yuan-china-40506

Latest MLA Format (8th edition)

Copy Reference
"Yen For Yuan China Has" 20 January 2007. Web.22 May. 2025. <
https://www.aceyourpaper.com/essays/yen-yuan-china-40506>

Latest Chicago Format (16th edition)

Copy Reference
"Yen For Yuan China Has", 20 January 2007, Accessed.22 May. 2025,
https://www.aceyourpaper.com/essays/yen-yuan-china-40506
   

Open, View, and/or
Download this Document
order custom essay example