Revaluation of Yuan *

            

Details


Case Code : CLIBE060
Publication date : 2005
Subject : Business Environment
Length : 04 Pages

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Abstract: ICMR India ICMR India ICMR India ICMR India RSS Feed

This caselet discusses the impact of the Yuan's peg against the US dollar on global trade. It specifically focuses on the growing pressure on China to revaluate its currency and describes the reasons for the delay in revaluation. The caselet looks at China's plans with regard to changing its foreign exchange rate system

Issues:

Is China getting an unfair trade advantage as alleged by other nations?
Yuan's peg against the US dollar
Why other countries are putting pressure on China to revalue its currency against the US dollar
China's concerns with regard to revaluation of renminbi
Speculation regarding foreign exchange rate reforms in China

Introduction

The possible revaluation of the Chinese currency, Yuan, against the US dollar in 2005 is helping speculators to make a quick buck in the foreign exchange market.

The Yuan had been pegged at 8.28 against the US dollar since the Asian financial crisis in the late 1990s. US manufacturers were of the opinion that Yuan's peg to the US dollar was undervalued, letting China gain an unfair trade advantage. US is not the lone suffer; the undervalued Yuan has also become a cause of concern for the countries of the European Union, Germany in particular.

Questions for Discussion:

1. Why is there a growing pressure on China to revalue its currency?
2. Why is China reluctant to revise its exchange rate immediately?

Key words:
Chinese currency, Yuan, renminbi, revaluation, European Union, G7 countries, Bretton Woods Accord, European Joint Float (EJF), European Monetary System (EMS), World Bank, float exchange rate system, Olympic Games, World War II, pound, counterfeit





* This caselet is intended for use only in class discussions.
** More comprehensive case studies are priced at Rs.200 to Rs.700 (US $5 to US $16) per copy.