General Question

gondwanalon's avatar

Why does China want to keep it's currency the Yuan low?

Asked by gondwanalon (19840points) September 30th, 2010

In the U.S.A. we want to have a high value dollar. I know that I do.

Experts claim that China is artificially keeping the Yuan low in order to get an unfair trade advantage. How does that work?

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7 Answers

bob_'s avatar

If the yuan is cheap relative to the dollar, China has a trade advantage: it can sell its exports for les U.S. dollars than if the yuan were stronger. Say it costs a Chinese electronics maker 50 yuan to make an appliance, or about U.S. $7.50 at the current exchange rate. If the yuan appreciated (say, from 6.7 yuan per dollar to 5 yuan pero dollar), the cost to the producer would be the same 50 yuan, but measured in dollars, it would be $10, making their exports more expensive.

Here is a longer explanation.

ragingloli's avatar

And since the US is an import nation, they want to keep their dollar strong, so they can pay less dollars for the same amount import.

Hawaii_Jake's avatar

In simple terms, it keeps their goods lower priced so they’re easier to sell to other nations.

arturodiaz's avatar

USA claims that, but I dont see why is unfair, every country decides how they manage their coin, so does the US. At times it has devaluated their dollar, other appreciate, depends on the circumstance. If US thinks its unfair maybe they just should not import from China and import from Europe perhaps.

The_Idler's avatar

Who said “USA” has anything to do with “fair”?

LostInParadise's avatar

I found an interesting article on this on Salon. The basic idea is that China is pursuing a mercantilist policy to build up its manufacturing base in the same way that the British and then the U.S. did. The idea is to import raw materials from other countries and to export manufactured goods.

gondwanalon's avatar

Thanks for the helpful input.

If the Yuan is undervalued then it might be a good idea to buy some Yuan had hold it for a long term (10 or more years) investment.

Today (10–1-10) you can buy 1 million Yuan for $101,936.79 (USD).

Any financial decision that I make nowadays I feel like Clint Eastwood in “Dirty Hairy” is pointing his gun at me saying: “Do you feel lucky punk?”. HA!

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