Friday, April 9, 2010

China To Loosen Exchange Rate

We've looked fairly extensively at exchanges rates over econ101b, and considered fixed and floating exchange rates.

China is the most obvious example of a fixed exchange rate system, and that system has long attracted criticism especially from the US because it means Chinese exports remain cheaper as the Chinese economy grows, and imports into China stay expensive. Hence Chinese exporters are helped, while US (and to some extent UK) exporters into China are disadvantaged.

It seems that China will start to allow some marginal changes in its currency - i.e. it will allow more movement. Given the vast amounts of currency coming into China to buy its exports, there is only one direction the currency will go - up!

The linked NY Times article is very nicely written to explain all the various aspects of this possible movement. Well worth a read.

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