Current Controversy China is accused of undervaluing the RMB How? Buying $1 billion U.S. dollars in RMB everyday Keeps demand for U.s. dollar high RMB low Causes U.S. dollar to appreciate relative to the RMB y By keeping RMB artificially low, China' s exporters have major advantage T-Shirt Example
Current Controvers y China is accused of undervaluing the RMB How? • Buying $1 billion U.S. dollars in RMB everyday • Keeps demand for U.S. dollar high, RMB low • Causes U.S. dollar to appreciate relative to the RMB Why? • By keeping RMB artificially low, China’s exporters have major advantage • T-Shirt Example
Positive Effects of Undervaluing RMB ☆ For china: Allows Chinas exporters to have advantage over competition Leads to high nx . For rest of the world Pay cheaper prices on Chinese imports
Positive Effects of Undervaluin g RMB For China: Allows China’s exporters to have advantage over competition Leads to high NX For rest of the world: Pay cheaper prices on Chinese imports Pay cheaper prices on Chinese imports
Negative Effects of Undervaluing RMB ☆ For china Inflation Less purchasing power for Chinese consumers ◆ For Us。 Huge trade deficit with China Loss of domestic jobs in the manufacturing industry For india Like China, India specializes in exporting textiles and toys The devaluing of the RMB, makes India,s exports comparatively more expense, less attractive
Neg g ative Effects of Undervaluing RMB For China: Inflation Less purchasing power for Chinese consumers For U S : For U.S.: Huge trade deficit with China Loss of domestic jobs in the manufacturing Loss of domestic jobs in the manufacturing industry For India: Like China, India specializes in exporting textiles and toys and toys The devaluing of the RMB, makes India’s exports comp y p, aratively more expense, less attractive