China's Currency Policy: An Analysis of the Economic Issues*

By Morrison, Wayne M.; Labonte, Marc | Current Politics and Economics of Northern and Western Asia, October 1, 2013 | Go to article overview

China's Currency Policy: An Analysis of the Economic Issues*


Morrison, Wayne M., Labonte, Marc, Current Politics and Economics of Northern and Western Asia


INTRODUCTION AND OVERVIEW OF THE CURRENCY ISSUE

China's policy of intervention to limit the appreciation of its currency, the renminbi (RMB) against the dollar and other currencies has become a major source of tension with many of its trading partners, especially the United States.1 Some analysts contend that China deliberately "manipulates" its currency in order to gain unfair trade advantages over its trading partners. They further argue that China's undervalued currency has been a major factor in the large annual U.S. trade deficits with China and has contributed to widespread job losses in the United States, especially in manufacturing. President Obama stated in February 2010 that China's undervalued currency puts U.S. firms at a "huge competitive disadvantage," and he pledged to make addressing China's currency policy a top priority.2 At a news conference in November 2011, President Obama stated that China needed to "go ahead and move towards a market-based system for their currency" and that the United States and other countries felt that "enough is enough."3

Legislation to address China's currency policy has been introduced in every session of Congress since 2003. The House passed currency legislation in 2010 and the Senate did so in 2011, although none became law. On March 20, 2013, Representative Sander Levin introduced H.R. 1276 to "clarify that U.S. countervailing duties may be imposed to address subsidies relating to a fundamentally undervalued currency of any foreign country." On June 7, 2013, Senator Sherrod Brown introduced S. 1114, which would require action against certain misaligned currencies. In recent years, congressional concerns over misaligned (or undervalued currencies) have extended to other countries as well, leading some Members to propose that currency provisions be included in future U.S. trade agreements.

China began to gradually reform its currency policy in July 2005, and between then and the end of June 2013, the RMB has appreciated by 34% on a nominal basis (and 42% on an inflation-adjusted basis) against the U.S. dollar. In addition, China's trade surpluses have fallen sharply in recent years and its accumulation of foreign exchange reserves has slowed. These factors have led some analysts to conclude that the RMB exchange rate with the dollar may be approaching market levels, or is, at best, only modestly undervalued. However, other analysts contend that the RMB remains significantly undervalued against the dollar and complain that the RMB has appreciated little against the dollar since the end of 2011. Thus, they argue that continued pressure must be applied until the Chinese government adopts a market-based exchange rate.

Although economists differ as to the economic effects an undervalued RMB might have on the United States (many cite both positive and negative effects), most agree that greater currency flexibility by China would be one of several reforms that would help reduce global imbalances, which are believed to have been a major factor that sparked the global financial crisis and economic slowdown. They further contend that currency reform is in China's own long-term interests because it would boost economic efficiency. China's government has pledged to continue to make its currency policy more flexible, but has maintained that appreciating the RMB too quickly could cause significant job losses (especially in China's export sectors), which could disrupt the economy.

Some economists question whether RMB appreciation would produce significant net benefits for the U.S. economy. They argue that prices for Chinese products would rise, which would hurt U.S. consumers and U.S. firms that use imported Chinese components in their production. In addition, an appreciating RMB might lessen the Chinese government's need to purchase U.S. Treasury securities, which could cause U.S. interest rates to rise. It is further argued that an appreciating currency would do little to shift manufacturing done by foreign-invested firms (including U. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

China's Currency Policy: An Analysis of the Economic Issues*
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.