The influence of RMB appreciation
With the expansion of the degree of openness between the countries, as the frequent unbalanced trade, credit and debt, international balance of payments, investment imbalances and other unbalanced economic development, in a country the currency's appreciation or depreciation will be faced with a very complex choice. A country's currency and currencies of other countries not only face the new changes, but also the direction of change is subject to external pressure.
In recent years, the RMB appreciation has become the focus of everyone's attention. The reason to exist appreciation pressure for RMB exchange rate is that there is a complex international society, politic and economic interest.The international appeal for RMB appreciation becomes louder and louder, mainly based on China's trade surplus and huge foreign exchange reserves. Therefore, whether this situation will benefit China or not. In my essay I will focus on talking about the influence of RMB appreciation.
The global leaders have agreed that it is necessary to reduce global imbalances as a priority matter. It means to reduce the US $500bn current account deficit and the $350bn surplus of China. The agreement requires the US must increase its national saving to reduce dependence on foreign capital. And China must increase domestic consumption to keep high employment without lots of exports. Through the introduction of fiscal incentives and credit explosive growth, China has successfully increased domestic consumption. These two shifts are necessary to reduce global imbalances, and exchange rates must also adjust. The Chinese government hasn’t allowed the RMB to appreciate. Due to the dollar falling relative to other major currencies, the fixed exchange rate of RMB relative to the dollar has caused the Chinese currency to fall relative to the euro and other currencies. The result leads to an increase in Chinese exports. This situation prevents reducing global imbalances. The policy of expending domestic spending in China while depressing the RMB will lead to the economy overheating such as manufacturing sector. Allowing the RMB to rise may shift the demand from manufacturing to services and stop inflation. A stronger RMB can alleviate the imbalance in China and global imbalances.
Obviously, the global imbalances are absolutely serious today. Each country has the responsibility to solve this situation. The Chinese economy is expanding rapidly. Without doubt, the rising to RMB can reduce the global imbalances and own inflation in a way. The increasing rate of GDP may be quicker than before. From a global point of view it may be exact. But follow China's national conditions, these measures to rise RMB can lead an awful condition that RMB appreciation will bring a contraction of consumption. Chinese always focus on the fee of education, health and housing. In China manufacturing is the fundamental. It is impossible to shift manufacturing to services. The decision of US reminds us of Japan 20 years ago. It is only a way to limit the development for China.
With the accelerated pace of global integration, trade and capital between countries in the degree of dependence is to achieve an unprecedented level, there is no one country can shut the door and its own development, accompanied by the mode of warfare is the diversity of economic sectors. The newest weapon of war in economy is the exchange rate. The exchange rate is a means to countries to achieve political objectives. Chinese Premier, Wen Jiabao said Chinese government will not succumb to foreign pressure on the RMB appreciation. The motivation of United States and Europe are more obvious. It aims to weaken China’s economic strength through the RMB revaluation, which affects China’s international influence in turn.
In fact, the prospect about RMB appreciation will become reality in the future. But it must increase very slowly. China will not follow other countries’ requirement, because their purpose is to limit the development of China’s economy. The rapid appreciation is very dangerous. Obviously, it is not conducive to exports of goods. More and more small and medium enterprises would have to close down. The unemployment rate will rise sharply. Furthermore, it will lead to lose attractiveness to foreign investors interiorly. Due to China's position in the economic market, US should consider whether their extreme pressure measure is right. For example, US threatened to impose tariffs on Chinese goods, which would increase inflationary pressures in the United States.
To sum up, there are lots of influences about RMB appreciation. From different standpoints, we can find different result. But during the present economic crisis, any countries should make sure of the position in the economic market. The result of RMB appreciation will lead to decline China's economic rapidly. So there is no benefit for solving the imbalance with economy. As China’s economic development, appreciation of RMB is an inevitable trend, but before without the formation of China’s real export advantages, the RMB nominal exchange rate is not suitable for a substantial adjustment. Even if faced with tremendous international pressure, China also should be in accordance with their needs of economic development to control the exchange rate, or we would be similar to Japan and Germany which have destroyed their excellent economic prospect.
Reference:
http://www.360doc.com/content/06/1026/14/10587_241147.shtml
Martin Feldstein (02-11-2009); why the RMB has to rise to address imbalances
http://www.forex.com.cn/html/c646/2009-11/1189538.htm
http://money.sohu.com/20100319/n270943818.shtml
http://en.cnki.com.cn/Article_en/CJFDTOTAL-JJWT200803033.htm
With the expansion of the degree of openness between the countries, as the frequent unbalanced trade, credit and debt, international balance of payments, investment imbalances and other unbalanced economic development, in a country the currency's appreciation or depreciation will be faced with a very complex choice. A country's currency and currencies of other countries not only face the new changes, but also the direction of change is subject to external pressure.
In recent years, the RMB appreciation has become the focus of everyone's attention. The reason to exist appreciation pressure for RMB exchange rate is that there is a complex international society, politic and economic interest.The international appeal for RMB appreciation becomes louder and louder, mainly based on China's trade surplus and huge foreign exchange reserves. Therefore, whether this situation will benefit China or not. In my essay I will focus on talking about the influence of RMB appreciation.
The global leaders have agreed that it is necessary to reduce global imbalances as a priority matter. It means to reduce the US $500bn current account deficit and the $350bn surplus of China. The agreement requires the US must increase its national saving to reduce dependence on foreign capital. And China must increase domestic consumption to keep high employment without lots of exports. Through the introduction of fiscal incentives and credit explosive growth, China has successfully increased domestic consumption. These two shifts are necessary to reduce global imbalances, and exchange rates must also adjust. The Chinese government hasn’t allowed the RMB to appreciate. Due to the dollar falling relative to other major currencies, the fixed exchange rate of RMB relative to the dollar has caused the Chinese currency to fall relative to the euro and other currencies. The result leads to an increase in Chinese exports. This situation prevents reducing global imbalances. The policy of expending domestic spending in China while depressing the RMB will lead to the economy overheating such as manufacturing sector. Allowing the RMB to rise may shift the demand from manufacturing to services and stop inflation. A stronger RMB can alleviate the imbalance in China and global imbalances.
Obviously, the global imbalances are absolutely serious today. Each country has the responsibility to solve this situation. The Chinese economy is expanding rapidly. Without doubt, the rising to RMB can reduce the global imbalances and own inflation in a way. The increasing rate of GDP may be quicker than before. From a global point of view it may be exact. But follow China's national conditions, these measures to rise RMB can lead an awful condition that RMB appreciation will bring a contraction of consumption. Chinese always focus on the fee of education, health and housing. In China manufacturing is the fundamental. It is impossible to shift manufacturing to services. The decision of US reminds us of Japan 20 years ago. It is only a way to limit the development for China.
With the accelerated pace of global integration, trade and capital between countries in the degree of dependence is to achieve an unprecedented level, there is no one country can shut the door and its own development, accompanied by the mode of warfare is the diversity of economic sectors. The newest weapon of war in economy is the exchange rate. The exchange rate is a means to countries to achieve political objectives. Chinese Premier, Wen Jiabao said Chinese government will not succumb to foreign pressure on the RMB appreciation. The motivation of United States and Europe are more obvious. It aims to weaken China’s economic strength through the RMB revaluation, which affects China’s international influence in turn.
In fact, the prospect about RMB appreciation will become reality in the future. But it must increase very slowly. China will not follow other countries’ requirement, because their purpose is to limit the development of China’s economy. The rapid appreciation is very dangerous. Obviously, it is not conducive to exports of goods. More and more small and medium enterprises would have to close down. The unemployment rate will rise sharply. Furthermore, it will lead to lose attractiveness to foreign investors interiorly. Due to China's position in the economic market, US should consider whether their extreme pressure measure is right. For example, US threatened to impose tariffs on Chinese goods, which would increase inflationary pressures in the United States.
To sum up, there are lots of influences about RMB appreciation. From different standpoints, we can find different result. But during the present economic crisis, any countries should make sure of the position in the economic market. The result of RMB appreciation will lead to decline China's economic rapidly. So there is no benefit for solving the imbalance with economy. As China’s economic development, appreciation of RMB is an inevitable trend, but before without the formation of China’s real export advantages, the RMB nominal exchange rate is not suitable for a substantial adjustment. Even if faced with tremendous international pressure, China also should be in accordance with their needs of economic development to control the exchange rate, or we would be similar to Japan and Germany which have destroyed their excellent economic prospect.
Reference:
http://www.360doc.com/content/06/1026/14/10587_241147.shtml
Martin Feldstein (02-11-2009); why the RMB has to rise to address imbalances
http://www.forex.com.cn/html/c646/2009-11/1189538.htm
http://money.sohu.com/20100319/n270943818.shtml
http://en.cnki.com.cn/Article_en/CJFDTOTAL-JJWT200803033.htm
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