1. 1 Why do you think the Chinese government originally pegged the value of the yuan
against the U.S. dollar? What were the benefits of doing this for China? What
were the costs?
The time and money system relationship. When the international monetary
system is the Bretton Woods Monetary system. In the monetary system, only the
dollar is linked to gold, other countries currency is pegged to the dollar.The U.S. dollar
was the strongest in the global market. The benefits for China were that their yuan
would stay weak, their exports would remain cheap, and their economy would thrive
on production for the U.S. economy. The costs for China were that they had to
exchange for U.S. dollars every month and that their exchange was the U.S. deficit.
2 Over the last decade, many foreign firms have invested in China and used their
Chinese factories to produce goods for export. If the yuan is allowed to float freely
against the U.S. dollar on the foreign exchange markets and appreciates in value,
how might this affect the fortunes of those enterprises?
The enterprises would have to pay the factory workers more money. It might not be
worth exporting the labor. For enterprises to open a position quantity restriction.
Mobility and manipulation of variation, there is no accurate quotation.
2. 3 How might a decision to let the yuan float freely affect future foreign direct
investment flows into China?
China’s FDI would suffer because countries would no longer hire out China’s
laborers. China would lose working contracts because country’s domestic labor would
become more economical.
4 Under what circumstances might a decision to let the yuan float freely destabilize
the Chinese economy? What might the global implications of this be?
The whole idea of keeping the yuan low in value on the global market is so that
countries would buy China’s exports. This kept the Chinese economy thriving. If
China no longer provided for the world, all of the other country’s economies would
suffer.
5 Do you think the U.S. government should push the Chinese to let the yuan float
freely? Why?
No, the U.S. government would only be harming their economy. Sure, it would
create more jobs for Americans, however, the cost of labor would be higher and
that would translate over to the final product’s retail prices being higher.
3. 6 What do you think the Chinese government should do—let the yuan float,
maintain the peg, or change the peg in some way?
I think it would be a good median for the Chinese government to maintain the
peg. The yuan would still maintain a similarly low value, keeping their economy
thriving, and would allow for the other world currencies to compete with the yuan. I
believe that the U.S. is asking too much of the Chinese government to let the yuan
float even more than they were already pressured into doing.
