Why does the Chinese central bank not want their currency, the Yuan, to appreciate?
Ed Ponsi) China’s economy is heavily geared toward the exportation of goods to the West, and much of the tremendous growth that China is seeing right now (GDP growth in excess of 10% annually) is due to its huge trade surplus with the U.S. and other western countries. Any economy that is heavily focused on exports will benefit from a weak currency, because it makes products cheaper to overseas buyers. As China’s exporters create and sell more of these products at a profit, manufacturing production increases and China’s economy grows. One of the side effects of a strong economy can be strength in the currency, but here is the problem – if China’s currency strengthens, sales of their exports to the West will fall. This would be harmful to China’s economy because of its emphasis on exports. How can China keep its currency weak (and its exports cheap) while simultaneously experiencing strong economic growth? For years, China “pegged” its currency to the U.S. dollar at a fixed rate. One U.S
