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Bilifuduo (98.19)

Will the Yuan Become Convertible?

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May 17, 2012 – Comments (0)

As China's hegemony grows, it is faced with an interesting dilemma concerning its currency manipulation policies. The Chinese government has long kept the value of the yuan at artificially low levels to give its exports a significant competitive advantage in their host countries, a development which has helped catalyze the rise of China as the world's top exporter.

However, the hubris and increasing confidence with which the Chinese government is beginning to assert its power has led to a growing conundrum. Chinese leaders have recently shown signs of implementing policies to try and turn the yuan into the reserve currency of the world. This development contrasts completely with the current Chinese currency policy: in order for the yuan to displace the dollar as the world's reserve currency, it needs to become convertible. Currency convertibility leads to looser government controls, which in turn would erase much of the advantage of the artificially low yuan in the international stage. 

 So will the Chinese government sacrifice a major competitive advantage to attempt to increase its hegemony?

Full story: here

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