The Chinese government should regulate the Chinese currency. The Chinese government’s desire to remain competitive in Asia and the global market is very dangerous to its neighbors and the emerging economies. Indeed, it is the concern of Chinese government to regulate the currency, but its negative impacts are short term. It is the role of the Chinese government to maintain the stability of the currency since it benefits the Chinese economy more. It is the responsibility of the government to regulate the currency based on the domestic demands but not on external pressure from strong economies. Chinese exchange rate poses mixed economic influence to China and other countries such as the USA. Undervaluation of the Yuan against the dollar results in benefits and costs to the US economy. It means cheaper imports from China than if the Yuan was used as a market-determined currency. It, therefore, lower the consumer prices and hence reduces the inflation (Cui 23).
The disadvantage is that lower priced commodities from China can hurt some of the US industries. The most affected industries are those that competes with products produced in China. The impact is the reduction of the level of production and employment. Undervaluation also makes US exports to China expensive. Appreciation of the Chinese currency impacts the US and the whole world. This is because it cuts the trade deficits of US. It has some influence on the rate of employment in the US since it will facilitate the creation of new job opportunities. It also reduces the current account deficit of US and those countries that are dominated by China regarding trade. The currency appreciation impacts the Chinese people. To the economy, a strong Yuan increases the level of unemployment. The appreciation reduces the Gross Domestic Product of the country by a significant value. It also decreases the value of exports and increases the value of imports by the Chinese people (Cui 34).
The future of Chinese currency will be managed in a manner that the Yuan is used freely to trade. This will, therefore, ease economic pressure on the United States and other nations that trade with China. China will also control the undervaluation of its currency that is currency giving Chinese unfair pricing advantage over other countries. RMB appreciation will exist for many years ahead of us. This is because of the dollar based Gross Domestic product traded by Chinese that is increasing at a substantial rate. The appreciation, therefore, has economic issues since the Chinese economy will grow at a higher rate hence increase its exports and decrease its imports.
The appreciation of the Chinese currency will have the significant impact on US dollar. The result is the economic pressure on the world trade since the dollar is used mostly in trade. The Chinese goods will not be cheap like in the current market. The appreciation may also impact jobs since it can lead to unemployment. The international competition will also be enhanced since China will not be able to supply the market with cheap products. The changes in the Chinese currency will affect Chinese students studying abroad in a negative way since their consumer power will reduce. The Yuan will be weaker than the dollar. However, the Chinese Americans will be affected in a positive since the dollar will gain an added value from the undervalued Yuan (Cui 66).
Works Cited
"Reforming the Currency Exchange System." Chinese Research Perspectives Online (2014). Web.
Cui, Yuming. "Re-testing Chinese RMB's Currency Basket: US Dollar Pegging vs. Currency Basket Pegging." PsycEXTRA (2011). Web.
"Traditional Regulation of Currency." Digital Currency: An International Legal and Regulatory Compliance Guide (2016): 13-15. Web.
