Unemployment

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China’s currency, the Yuan, has been appreciating over the past two decades compared to the numbers in 1993. China’s Yuan is set at a lower value in terms of the US dollar, since the US is one of their major trading partners and thus China needs to maintain its attractiveness for exports. China heavily relies on its exports, thus a change of its currency will result in significant consequences in terms of its economic performance, referring to a decrease in the rate of economic growth or even a fall in growth. In order for China to maintain economic growth, its exchange rate needs to be at a lower value in terms of the dollar. This paper assesses China’s current appreciation problem of its currency, the Yuan, and how it could result in serious economic problems in terms of trading on different stakeholders. It will concentrate on the exchange rate manipulations by the central bank by manipulating the supply and demand to revaluate or devaluate the Yuan. This can be done in three different ways: 1. Sell the Yuan from its foreign currency reserves, as China has a huge trade surplus 2. Import large quantities, so its trade surplus will be more balanced 3. Decrease Chinas interest rate, so the return in Chinese Investment will decrease and therefore speculators will rather sell their Yuan An exchange rate is known as the value of one currency expressed in terms of another currency. China’s Yuan is known as a managed exchange rate, as it is set at a target rate within which it can fluctuate, beyond these targets the government or central bank will intervene. As the Yuan is priced less then the dollar, Chinas exports are cheaper compared to the goods and services in the US. Therefore, the demand for Chinas exports are high, whereas t... ... middle of paper ... ...to the depreciation of the Yuan, Chinas export industries now become more competitive, thus their export revenue will increase and in turn the demand for domestic labor increases, leading to less unemployment and an improvement on the economic performance. As it says in the article “end intervention…widen trading band…”, China strives for a “more freely floating” exchange rate system. This would improve China’s economy in terms of its financial account deficit, as a result of its current account surplus (trade surplus) and thus its low foreign direct investment inflows, causing economic growth to slow down. Under a freely floating system, the trade surplus and thus the appreciation pressure, “auto-corrects” itself. Hence, as there is a trade surplus, the Yuan appreciates and as a result, its export competitiveness decreases and eventually, the surplus will reduce.

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