Chinese Yuan (RMB) Debate

This time round, even the International Monetary Fund has chipped in to say that the Chinese Yuan (RMB) should be adjusted (re-valuated).

China's Depreciation Stirs Manipulation Debate — Radio Free Asia

The proponents – US and India. The opponents – Only China.

The proposition of proponents – Re-valuating the RMB will solve the trade imbalance – currently, the United States vs China deficit stands at about 62.4%. This is staggering as much of the imports for Chinese products into the United States translates into revenue for the Chinese. And as long as the revenue streams come trickling in, the China economy will continue to grow – at the expense of the United States.

The cold war between the United States and Russia had already passed with the collapse of the Berlin was in 1989. This time round, the economic cold war between United States and China will be more prolonged. It is not easy to let market forces remove the peg of the Chinese Yuan to the US Dollar as the forex reserve of the Chinese Government standards in the order of trillions, most of it in US Treasury bonds China’s silk road economic belt.

The proposition of opponents – Re-valuating the Chinese Yuan will NOT solve trade deficit issues. The Chinese Government maintains the staunch position that any major currency revaluation will destabilise the world market – in relation to the world economic crisis which started in Oct 2008. Re-valuating the Chinese Yuan upwards would also mean that the China economy might cool down and this effect might impact the related emerging markets. In short, the Chinese Government would only want to revaluate the yuan when it wants to do so, and only when it feels that any revaluation will benefit the Chinese economy.

Currently, 1 U.S. dollar (USD) trades at 6.826 Chinese yuan (RMB). And the Chinese Government are not hinting that the rate can go below 1 USD compared against 6.00 Chinese Yuan (RMB) anytime soon – much to the frustration of the United States.

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