Yuan Dollar Peg (Reminbi Dollar Peg)

Of all the major worldwide currencies, the People’s Republic of China is the only one that has a fixed exchange rate with other countries now using a floating exchange rate.  Because the Yuan Dollar peg (to the US Dollar), many economists are now trying to determine if Chine will begin to let the Yen appreciate.  If the country agrees to this, it would be the first time in the past two years.

We know that the United States has been a key component of China’s currency policy previously but it now seems this is starting to put a hamper on the United State’s economy while also creating issues of unfair trade practices.  As a prime example, this past March saw imports from China increasing, which might cause the Asian economy to see a trade deficit, the first in six years.

While the issue of the trade deficit has people saying the Yuan Dollar peg should stay in place, it still looks as if the Beijing government is going to allow this country’s currency to appreciate and soon.  Without doubt, change to the current currency policy in China is needed and the buzz going around right now is that this is something that could happen in the next weeks to months.

Since the summer of 2008, the Yuan Dollar peg has stayed around 6.83 for every dollar, which has been done to help increase the amount of exports during a serious withdrawal of trade, the biggest since the start of WWII.  Even though the Yuan has been frozen, exports experienced a 13-month decline.  As a result, this left China’s trade surplus less by 34% to just $196 billion.  However, last year lawmakers in the United States were calling for action when the trade gap with this country reached $227 billion.  Discussion amongst the American lawmakers was that the unfair trade practices occurring in China had to stop.

Currently, officials and the President in the White House are trying to lower the trade deficit in that it has a negative impact on the United State’s economy.  The reason is that money is being sent to China instead of being spent within the US.  By reducing the gap for the trade deficit, it is believed the gross domestic product would improve and unemployment numbers would decrease.

By stopping the Yuan Dollar peg, US officials believe many problems and concerns would be resolved.  However, on the other side are the financial experts that strongly believe the stable Chinese Yuan pegged to the US Dollar played a key role in the recovery of the economic crisis felt around the world.  While it is true that China has worked hard to restructure financial imbalances around the world, the concern is that any affect occurring from appreciate of the Yuan would be diminished once the trade balance swings to greater demand in China and the US for domestic products.

Currently, meetings between the US and China are taking place to discuss the Yuan Dollar peg and unfair trade practices so an acceptable resolution for both countries could be reached.  Even with the meetings going well, officials in the United States do not believe that the Beijing government will agree to anything specific since determination by leaders of China has long been not to give into pressure to the US, especially when it comes to issues of currency.