Forex Blog: Currency Trading News & Analysis.

February 21st 2009

Yuan Revaluation is in China’s Interest

While China remains committed, in rhetoric at least, to a flexible Chinese Yuan that rises and falls in accordance with market forces, its actions suggest otherwise. Beginning in the second half of 2008, China stopped allowing the Yuan to appreciate, for fear that a more expensive currency would exacerbate the domestic effects of the credit crisis by making exports less competitive. What China fails to realize however, is that a more valuable Yuan is not only conducive to global economic stability, but also to its own economic well-being. In fact, the artificially cheap Yuan may have actually worsened the economic downturn in China, because de-incentivized the creation of a domestic economic base. Now that overseas demand has dried up, it is left feeling the consequences of this neglect. The San Francisco Chronicle reports:

With China far too dependent on export-driven growth, it is now extremely vulnerable to the current steep decline in global export demand. Unless that structural imbalance is fixed, China’s long-term growth prospects are as bleak as those of the United States.

Read More: Undervalued currency helps, hurts U.S. economy

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