This article relates to how we spoke about exchange rates last class. The Chinese government wants to make its currency more strong before making the exchange rate flexible. Chinese goods are very competitive in foreign markets since its exports are cheap. China has done this by keeping the value of its currency low. This has led to some countries losing the sales of their goods for example the U.S has lost sales of manufacturing as Chinese manufactured goods are cheaper. However, with the Chinese currency being strong, Chinese goods would become more expensive in the U.S and U.S goods cheaper in China. A stronger currency(the renminbi) would make imports cheaper and "give China’s central bank more room to raise interest rates and brake economic growth without lessening the risk of drawing more speculative investments into the country." Keeping the value of the renminbi has been quite costly for China.
A flexible exchange rate would hurt low-margin, labor intensive firms such as shoes and manufacturing. If the renminbi appreciates it could result in the loss of jobs.
2 comments:
This could greatly effect China's employment as foreign firms start looking to other countries, such as Vietnam and Southeast Asia for cheaper labor.
This is all true, however, how quickly will these changes take effect? Perhaps, with a still struggling U.S. economy the changes will be relatively fast. Also, a flexible exchange rate could make China a stronger economy, and perhaps be beneficial to all economies through new innovation, investments, and ideas in China.
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