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Chinese Currency Policy Becoming Global Challenge


Sunday, March 21st, 2010

China has come under increasing pressure to allow its currency to rise to what is considered a much higher value than is being allowed at this time.

While the United States has been pushing for this for some time, other areas of the world have gradually entered into the fray, although not at the level of the U.S.

Even so, it's odd in that the U.S. really isn't the country being affected by the value of the Chinese currency at this time, even with the $227 billion trade deficit the U.S. has with China at this time.

The U.S. has actually encouraged the trade deficit by persuading the Chinese to buy up U.S. Treasury's in order to bring low cost products to the U.S. consumer.

So the idea this is happening solely with China isn't really true at all, but is part of the way the two countries are doing business.

The countries really being hurt be the Chinese currency policy are those in the region who compete with China with exports. Even those countries have to keep on buying U.S. Treasuries to keep the dollar propped up, while also not allowing their own currencies to move too much with the renminbi so they can stay competitive.

There are a lot of economic uncertainties with China now, and it's doubtful the Chinese are going to make any hasty moves to change their monetary policy until things get much more stable globally and domestically for them.

Until that time we'll probably continue to hear the complaining, but countries also need the Chinese markets to grow their businesses as well, and China knows they have the upper hand there, even with the trade deficit being so wide with the U.S., and to a lesser degree, other trading partners.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: china monetary policy , renminbi , trade deficit

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