Pegging Of The Chinese Yuan

This Article focuses on understanding how the pegging of Chinese Yuan has helped the global economy.

The Chinese yuan had been pegged for several years. It is an approach that has kept the exports of the country cheaper and attractive compared to that of other nations. China worked with the principle of motivating the rest of the world to buy its goods. In this way it has been able to gain economic prosperity.

If the yuan currency is kept low as compared to other currencies, consumers will use more of foreign currencies to buy exports of China as compared to a situation when yuan was more expensive. The People’s Bank of China has kept the yuan weak in comparison to currencies like the US dollar due to which more US citizens buy Chinese exports and fled China with US currency.

It is known that exports act as principle drivers of any economy and it represents the amount of money that flows into a nation. The yuan was kept artificially at a low level in order to ensure that export activities are robust. This was also done by the Chinese Central bank purchasing foreign currencies. The central bank has foreign exchange reserves around 600 billion in US dollars as of December 2004 and this amounted to 3.8 trillion in US dollars by 2014.

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Economic prosperity

The manipulation of the currency has helped the nation to thrive and as a result, it has seen a robust growth, which has been more than ten percent repeatedly in the last decade. The industrial sector of the country features the largest manufacturing sector in the world, as found in 2011. The country showcased a robust rate of growth since 1980. Due to this its gross domestic product per capita has also doubled in a decade, which evens an industrialized nation like the UK was able to achieve in 150 years. With this kind of expansion China owns about 23% of the value added manufacturing services as found in 2013 findings.

Benefits and costs

Even though the figures are great for China, it does not make every country optimistic. This Article talks about other Chinese Financial Policies as well. For instance, the US workers and manufacturers complain about the surplus of Chinese trade and how the pegging of the yuan has led to the country having an unfair advantage. Many have asked for China’s currency to be revalued. However, this offers benefits for other countries too who is purchasing Chinese goods. As these come at cheap prices, it helps to keep inflation under control in these countries as well. The benefits extend to businesses as well. The less expensive intermediate components from China that are used to make industrial goods in other countries also lead to less pricing of these goods. Hence, other countries can increase their profitability based on the cheap Chinese goods they use. The trade deficits also help in the movement of capital such as it does from the US to China. When the foreign capital is used to purchase interest bearing securities, it reduces borrowing costs as well as encouraging investments. Hence, the US and other countries find economic growth due to the pegging of the yuan.


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