What is the controversy over the Chinese Yuan this is from

What is the controversy over the Chinese Yuan? - this is from the 3840 class\'s video assignment, China on the rise : paul solman reports video.

Solution

INTRODUCTION:

China is one of the leading economy and is growing from many perspectives. It is growing in terms of exports, the growth in domestic market, the increase in consumerism in Chinese market, spread of consumerism in the country etc. With this the Chinese economy have grown 8 times and is still on the rise.

There are number of pitfalls that result into the downfall of the economy such as the poor growth in stock market, poor investment policies and lack of transparency, conflicts over the Intellectual property rights, insolvency of the banks etc.

CRITICISM ATTACHED TO CHINESE YUAN:

China is trying to devalue its currency (Yuan) as a result raising criticism for the country. Doing this could result into the entire world economy face recession and downfall in its progress. The Chinese currency in nature is partly convertible in the hands of its holders but its conversion into fully convertible US dollar raised more controversy and confusion in the minds of the policy makers. The main aim to convert Yuan into fully convertible US dollar is to intentionally harm the US exports and bring loss to the US market. In order to avoid this and to un- harm the US economy, the Chinese currency should be revalued as compared to the US dollar or this policy of full convertibility should be removed.

This full convertibility policy also influenced the profit margins and led to their decline, but the decline in profit margins would not affect the already enormous production capacity of China, as a result the market will be infused with more supply and as a result creation of imbalance between demand and supply. Even if China is thinking to reframe the policy and removal of full convertibility of US dollar even then the imports of oil and metal will increase as a result putting more pressure on the already over burdened Chinese market. Moreover any changes made would attract the incoming of \'Hot Money\'\' in China thereby adding up inflation rates and bringing imbalance to the Chinese economy.

WAY TO AVOID CRITICISM:

One of the ways that can be adopted by China in order to avoid the controversy is by maintaining a fixed rate of exchange and no more devaluing it. There can be number of advantages that can be enjoyed by Chinese economy if the exchange rate is kept fixed:

Not only China, but every nations as well tries to manipulate its currency, in number of ways, so as to add benefits to its economy. but this effort when taken up by China infused controversy just because of its floating exchange rates. Therefore in order to come out of such controversies steps can be taken to stable its exchange rates over time.