Sunday, September 24, 2006

BUS 466: Undervalued Yuan and Yen?

A recent WSJ article reported that during the annual meeting of the International Monetary Fund (IMF) in Singapore last weekend, finance ministers from the Group of Seven (G-7) major industrial powers (United States, Japan, Canada, France, Italy, Germany, and the United Kingdom) urged China and Japan to appreciate their currencies. The United States and European countries have become worried that their companies are being placed at a disadvantageous position by cheap Asian competitors as a result of undervalued Asian currencies, namely, the Chinese yuan and Japanese yen.

U.S. politicians, unions and manufacturers argue that China has deliberately kept the yuan undervalued against the dollar costing American companies sales and American workers jobs. Treasury Secretary Henry Paulson thinks that the yuan issue has to be addressed to resist protectionist measures under consideration in Congress. As a punitive measure, the U.S. Senate is expected to vote this month on a bill that would impose 27.5% tariffs on Chinese imports.

In a related WSJ article, China's central bank governor says China will allow market forces to play a greater role in setting the value of the yuan and will adjust the currency's daily trading band "sooner or later."

We will discuss these issues in class on Tuesday.


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