Sunday, January 23, 2011
The Rise of The Redback
As many know, China is one of the fastest, if not the fastest growing economies in the world. With new markets and a growing economy, the yuan has a lot of potential to grow (the yuan is the currency in China). China's president Mr. Hu Jintao believes that, "the dollar's role reflects America's historical clout, not its present stature" Mr. Hu means that the dollar is not what it used to be as the leading currency in the world. China is planning on opening up their financial markets in order to begin to compete with the US dollar. It is said that China's economy will surpass the USA economy within the next 20 years. So far, China has been attracting new businesses opening in Chinese currency, and is the worldwide leader in exports. The action of this is referred to as the pool of "Redbacks". With new opportunities in China, people will be more likely to invest stock and bonds through the Chinese markets. Later on, China is looking to lend its own currency rather than borrowing in their own currency. Unfortunately the current system is not set up to support this new movement. With the many investments that China already has in other countries, the investments weaken when Chinese currency strengthens. They will have to find a way to counteract this in order to really take a strong stab at gaining the worlds best currency.
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China is the world leader in exports due to its low valued currency which encourages firms to move production to the country. Firms outsource to China because the cost of production is so cheap there. When many of the large firms are outsourcing, all the other firms are confronted with the issue of competing with these other low prices. Therefore, these other firms that have not chosen to outsource to China or another country in which the costs of production are extremely low, eventually have to make a decision as to whether they are going to try to be competitive without outsourcing and possibly going bankrupt or by ultimately choosing to outsource in order to remain competitive either at a global or national level.
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