Wednesday, November 18, 2009
Developing Countries Voice Complaints About Chinese Currency
China has continued a FIXED exchange rate with the U.S. currency, while other countries have a variable (or fluctuating) rate. The official exchange rate between U.S. dollar and Renminbi yuan currently is about 1:6.8 (1 US dollar = 6.8 yuan RMB) With your knowledge of supply & demand, does this hurt or help the US currency? Why?
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Well, with a fixed rate, I think it would hurt US currency because the demand for the yuan is increasing, creating a decline in demand for the dollar, whereas variable rate, like the other countries, has the ability to keep up with the fluctuations of the Chinese currency.
ReplyDeleteIt would hurt the U.S., and increase the demand for the yuman. If the Yuman is worth more than the dollar than people would be able to buy more goods there than here. With a fluctuating currency, it would allow for the U.S to try to keep up, but fixed rates do not.
ReplyDeleteAlthough I remember you telling us that the fixed rate between U.S. and China is damaging to the U.S. economy, I still don't quite grasp how. It seems like we pay less dollars per yuan, although I'm not sure if inflation rates come in to account, although they probably do. I would have to assume that demand for Chinese products, and therefore demand for the yuan, would also be taken into account. I'm still puzzled, though.
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ReplyDeleteI think the fixed rate between the U.S. and China is hurting the U.S economy. This is causing the demand of the yuan to increase, which decreases the demand of the dollar. Other countries with variable rates are able to keep up with the yuan.
ReplyDeleteWhat Daniela said makes perfect sense. At a fixed rate, an increase in demand for the yuan would result in a decrease in demand for the U.S. dollar. In a way, they are substitutes and are inversely related. This would have a negative effect on U.S. currency.
ReplyDeleteWell, other currencies are fluctuating along with the US dollar, while the yuan is fixed.
ReplyDeleteSo while the dollar is losing its value, the yuan is staying in pretty much the same place.
Thus, it hurts the US economy, because the dollar is worth less and less, but the yuan's value is constant, so people would be more likely to invest less in the dollar and more in the yuan.
The yuan is more secure than the dollar, and as we know from a previous article, a secure currency makes for a secure economy.
Well, with a fixed rate, as the US dollar loses value the demand for the dollar decreases as the demand for the yuan increases. This would lead to further economic struggle on America's behalf. However, with a variable rate, other currencies would all be able to fluctuate, and prevent this from happening.
ReplyDeleteI have to agree with Garrett. I don't understand how the US dollar being able to equate to many of the Chinese yuan (and therefore, we'd be able to "stretch" our dollar further) is a bad thing. Someone enlighten me?
ReplyDeletealthough I'm not really sure about this, I want to say that the U.S. is getting the bad end of the deal. If the value of the yumen fluctuates that means that at times we may be paying more in value when it comes to trade because the yumen may decrease in value.
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