Is China To Buy More US Treasuries With Chinese Yuan Showing Signs Of Rising?
The Chinese Yuan finally seems to be showing signs of rising. Actually, left to free market forces, the Yuan would have appreciated much earlier and by a greater amount. However, the Chinese government has traditionally kept the Yuan undervalued in order to keep Chinese goods cheaper as compared with goods produced in other nations so as to promote its exports. China has prospered using this artificial subsidy for its exports and in the bargain raised a huge corpus of dollars in the form of a huge trade surplus. China has used this massive surplus to buy US treasuries. Traditional economics suggests that a trade surplus implies that the nation is exporting more than it is importing and the demand for the domestic currency should be higher than the demand for foreign currencies. A higher demand for the domestic currency vis–vis the foreign currency implies that the domestic currency should appreciate. However, in order to provide an artificial kick to its industry, China had not allowe
