Contrary to the conventions and misguided wisdom, China is wrongly criticized for not allowing her currency to float. This is absolutely misguided and is based on the simple, yet incorrect, assumption that the more Chinese goods cost, the less quantity of them we will buy, and the cheaper our goods are, the more quantity of USA products we can sell. The theory goes that if currencies float freely, trade deficits will decrease, and more Americans will get jobs. Historically, this hasn't worked. Closer examination of the underlying theory explains why. If the Chinese currency floats freely, we will just spend more money for the same amount of goods, further aggravating our balance of trade deficit.
Showing posts with label Deficit Trade Banking "Federal Reserve" "Exchange Rate" Yuan Dollar China USA American Chinese Economy Econometrics Trade Foreign International Chinese Republican Scapegoat Election Politics. Show all posts
Showing posts with label Deficit Trade Banking "Federal Reserve" "Exchange Rate" Yuan Dollar China USA American Chinese Economy Econometrics Trade Foreign International Chinese Republican Scapegoat Election Politics. Show all posts
Thursday, April 28, 2011
China’s Monetary Policy Is Fine, No Need for Her Currency to Float
Contrary to the conventions and misguided wisdom, China is wrongly criticized for not allowing her currency to float. This is absolutely misguided and is based on the simple, yet incorrect, assumption that the more Chinese goods cost, the less quantity of them we will buy, and the cheaper our goods are, the more quantity of USA products we can sell. The theory goes that if currencies float freely, trade deficits will decrease, and more Americans will get jobs. Historically, this hasn't worked. Closer examination of the underlying theory explains why. If the Chinese currency floats freely, we will just spend more money for the same amount of goods, further aggravating our balance of trade deficit.
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