The US-China Exchange Rate Stand-Off
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Case Details:
Case Code : ECON019
Case Length : 18 Pages
Period : 2002-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : -
Industry : -
Countries : China and USA
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China Softens its Stand
On July 21, 2005, China announced a new exchange rate system,
referred to as the "crawling peg"30.
Under this system, the Yuan was to be referenced, not just to the US Dollar, but
to a basket of currencies31...
Yuan's Revaluation:
A Mirage?
At the time of making the first announcement, the
Chinese government had hinted that further reforms would be introduced
over time.
However, on July 27, 2005, the Chinese central bank announced
that no further changes in the value of the Yuan were to be expected in
the near future.
Critics were quick to point out that this indicated that the Chinese
government would continue to intervene in the foreign exchange
markets... |
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The Other Point of View
The Chinese government maintained that the Yuan-US Dollar
exchange rate was favorable to bilateral trade. It argued that having a trade
surplus with the US was not proof that the currency was undervalued...
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Outlook
As of early 2007, China was a major market for US
companies and an important source of capital for the US economy. The
Yuan-US Dollar exchange rate remained at levels similar to late 2006 and
there were no indications that the Yuan would be revalued in the near
future.
The exchange rate on April 26, 2007 was 7.7265 Yuan to the US Dollar
(Refer Exhibit VII for the Yuan Dollar Exchange rate between November
2006 and April 2007). In 2006-07, China recorded a GDP growth of 10.5%
and increased exports by 25%... |
Exhibits
Exhibit I: Yuan-Dollar Exchange Rate in the 1990s
Exhibit II: Trade between US and China (1997- 2005) Top Ten US Exports to China
Exhibit III: US Trade with China: 1995-2007
Exhibit IV: China's Foreign Exchange Reserves: 1990-2005
Exhibit V: The Yuan-Dollar Exchange Rate (January 2005 - February 2006)
Exhibit VI: US and China Compared: Savings, Investment and Consumption as a
Percentage of GDP
Exhibit VII: The Yuan-Dollar Exchange Rate between November 2006 and April 2007
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