Should Rmb Appreciate

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CHINESE CURRENCY: TO APPRECIATE OR NOT TO APPRECIATE-THAT’S THE QUESTION

Bala Maniam, Sam Houston State University Mei Mei, Sam Houston State University Prakash Dheeriya, California State University-Dominguez-Hills

ABSTRACT This paper discusses the pros and cons of appreciating the Chinese currency. The Governmental stances and views of economists and businessmen both for and against the RMB appreciation are discussed, followed by the analysis of the fundamental motives of American and Japanese government and industrialists for pressing China to revaluate RMB. This is followed by a brief discussion and analysis of what should be done about RMB’s value. This paper concludes that it is not in the interest of China to appreciate RMB at the moment or in the near future. Before China succeeds in systematic structural reforms and its economy gets strong enough to withstand risks of RMB appreciation, it should and will maintain the current RMB-dollar exchange rate. INTRODUCTION Over the past few months there has been heated discussion about the issue of China’s currency revaluation. There are generally two positions in this currency dispute. American politicians, scholars, and business people, particularly those in manufacturing industry are accusing China of deliberately and severely undervaluing its currency. They blame the low value of the Chinese RMB for US job losses, trade deficits, and other economic problems, and are pressing the Chinese government to abandon artificial manipulation of foreign exchange rate system and allow RMB to appreciate. If it remains unchanged, the American government has threatened to inflict trade sanctions against a series of products imported from China, e.g. TV sets, textile products, furniture, etc in order to force China to raise the value of RMB. It has sought allies from other governments through G-7 meeting and held other high-ranking bilateral talks. Japan is responding most actively to America’s call for the revaluation...