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Making China’s currency flexible for wider benefit

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littlekracker


Making China’s currency flexible for wider benefit
Saudi Gazette - 10 April, 2010

China has long parried the pressure exerted on it by the US to allow its currency, the renminbi, to appreciate. Although it is difficult to attribute the US pressure to indications that China is readying to allow its currency to float more freely, the decision has been made, and hopefully everyone will benefit from it.
For the US and especially those countries in the world whose currencies are pegged to the US dollar, the first signs of any change is likely to be evident in slight increases in price of some of the myriad products that are manufactured in China. For those countries with a manufacturing base, it could even lend a boost to some domestic industries. The criticism of China’s currency policy lay in what many charged was a renminbi kept at an artificially low rate that allowed goods manufactured in China to enter the world market at artificially low prices. LG products may be good, for example, but their price tag is what catapulted the company to world renown.
China is now in a nascent phase of shifting its economy away from an export economy to one based on domestic consumption. On a consumer basis, that will allow more domestic consumers to buy locally made products at lower prices. It will also lower prices for imported goods, which will help keep prices of locally manufactured down, as well.
A stronger renminbi is, indeed, favored by some local industries, especially those in the high-tech sector. It should make sourcing necessary materials from the US, for example, cheaper. At the same time, allowing the renminbi some flexibility allows the central bank to fight inflation more effectively. The bank will have more room to raise interest rates and brake economic growth without affecting negatively the incentive for speculative investments.
The Chinese economy has been like the guy driving from a side road onto a major freeway, gunning the engine and traveling at high speed to merge with traffic and then backing off the accelerator a bit in order to take a good look at the lay of the land and plan the next move. If the next move is a more flexible renminbi, not only China but other drivers, as well, will profit.

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