Details
Mini Case Code : CLIBE060
Publication date : 2005
Subject : International Business Environment
Length : 04 Pages
Price : Rs. 100
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Key words:
Chinese currency, Yuan, renminbi, revaluation, European Union, G7 countries, Bretton Woods Accord, European Joint Float (EJF), European Monetary System (EMS), World Bank, float exchange rate system, Olympic Games, World War II, pound, counterfeit
Note
* This caselet is intended for use only in class discussions.
** More comprehensive case studies are priced at Rs.200 to Rs.700 (US $5 to US
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Abstract
This caselet discusses the impact of the Yuan's peg against
the US dollar on global trade. It specifically focuses on the growing pressure
on China to revaluate its currency and describes the reasons for the delay in
revaluation. The caselet looks at China's plans with regard to changing its
foreign exchange rate system
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Issues:
» Is China getting an unfair trade advantage as alleged by other nations?
» Yuan's peg against the US dollar
» Why other countries are putting pressure on China to revalue its currency against the US dollar
» China's concerns with regard to revaluation of renminbi
» Speculation regarding foreign exchange rate reforms in China
Introduction
The possible revaluation of the Chinese currency, Yuan, against the US dollar in
2005 is helping speculators to make a quick buck in the foreign exchange market.
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The Yuan had been pegged at 8.28 against the US dollar since the Asian
financial crisis in the late 1990s. US manufacturers were of the opinion that
Yuan’s peg to the US dollar was undervalued, letting China gain an unfair trade
advantage. US is not the lone suffer; the undervalued Yuan has also become a
cause of concern for the countries of the European Union, Germany in particular.
On April 16, 2005, US Treasury Secretary, John Snow, at a meeting of G7
countries said, "They've made enormous strides in fixing the financial
infrastructure.... It's time for the Chinese to move to flexible currency."...
Questions for Discussion:::
1. Why is there a growing pressure on China to revalue its currency?
2. Why is China reluctant to revise its exchange rate immediately?