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China's Renminbi: "Our Currency, Your Problem"?  
 
Product Ref: 07/352C Company: N/A

Product Type: Case Industry: Public Policy & Strategy

Related Product(s): Teaching Note
Authors: K.C. Fung   Ka-Fu Wong   Ricky Lai
The Chinese currency, the renminbi, has been a subject of controversy between China and its trade partners (especially the US), which accuse China of manipulating its exchange rate to make its exports artificially cheaper. They perceive the renminbi as an unfair weapon in international competition. Chinese officials responded that these attacks were groundless: the renminbi was not undervalued, at least not significantly. The peg contributed to maintaining a stable economic environment, which benefited all economic partners. They also said that, if the US was running a large trade and budget deficit, it was partly attributable to capital inflow from China. The US should focus on the weaknesses of its own economy that generated these deficits, instead of treating China as a scapegoat. Officials also said that China was a sovereign country with the right to choose its exchange rate policy.

Throughout 2005 to 2007, the debate was regularly in the news and it was likely that arguments would become tougher if US and European trade deficits with China continued to increase. This case is about economics and business, introducing the basics of monetary economics and demonstrating practical applications of monetary policies and exchange rates that pertain to business decisions.
Functional Area : Economics & Business Policy

Issues: Monetary economics, exchange rate policy, international business, currency regimes, business and government, international trade issues, uniqueness of renminbi policies compared to other currencies
Length: 22 pages Country: China (People's Rep. of)

Pub. Year: 2008 Level of Difficulty: 3
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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