China has recently been accused of currency manipulation from many nations and economists around the world. These accusations are results of Chinese currency being extremely low to make exports harder on the global market. As a consequence, this has slowed economic recovery for many nations because the Chinese products are cheaper and thus, have a higher demand from many countries.
There has been a fixed rate, or an exchange rate that the Chinese government keeps constant in comparison to another currency. As a result of the economic crisis in 2008, China has had all those accusations for keeping their currency low. This has been done according to Chinese monetary policies in the government office.
Because of the US debt, the RMB has been able to keep its low value. As a consequence, it floods the currency market with the RMB and takes the American dollar off the market simply because the RMB has been kept low. According to the law of supply and demand, the US dollar increases and the RMB decreases, increasing demand for Chinese products but decreasing demand for US products.
According to the diagram below, there is a shift of supply to the right from S1 to S2. As a result, the price decreases from P1 to P2 on the y axis and the quantity of RMB increases from Q1 to Q2. Therefore, the RMB value decreases, as desired.
After reading the given articles, there seems to be consequences to China’s currency manipulation. The United States owes China such a big US debt and thus, it devalues the value of RMB especially when compared to USD. However, China’s low valued currency affects other nations’ currency as well. As a consequence, there may be a currency conflict among several nations. A currency war is a conflict when many countries weaken or strengthen their currency altogether because they affect each other directly, so one little action or move from one nation can create a move from others, as they all move together.
Recently, the city of Beijing in China has made statements in releasing some government control over the exchange rates as to make the RMB’s value increase. Thus, China has the interest in increasing its currency’s value, which shows that China has been manipulating its currency and devalued it.