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Revaluation of Yuan - Essay Example

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Revaluation of Yuan The article, “Why China Is Unwilling to Revalue the Yuan” written by Ian Lamont in The Baseline Scenario in October 1, 2010, describes various reasons behind the decision of the communist government of the country not to devalue the Yuan in terms of Dollar…
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Download file to see previous pages Although this devaluation will help the exports of the foreign countries to grow, it will hurt the domestic growth perspectives of China, including preservation of domestic growth and stability, and also the stability of political power. Unlike other countries, the communist political party of the country has maintained an equal distribution of goods and services and income among the poorest section of the country, being consistent with the high rate of economic growth. The author has opined that a sudden devaluation of Yuan will hurt the employment structure of the formal as well as the informal sector of the country. This reduction in employment will occur through shifting of “low-wage manufacturing to countries such as Vietnam and Sri Lanka”. This will cause the domestic rate of growth of income to reduce and thus the level of domestic protests and the degree of political instability will be accelerated in the country. However, as the country is willing to maintain its 8% annual rate of economic growth, with low rates of annual inflation of about 3%, the national propaganda of the country’s communist party is to stick to its current exchange rate determination process. Hence, the foreign countries and business organizations are expecting a much appreciated value of Yuan in the future; however, the future expectations of the economic and trade related effects on the Chinese and the global economy are required to be evaluated before proceeding with the revaluation policy (Lamont). The writer has wrongly revealed the point of view of the communist government of the country regarding the decrease in the amount of employment in the formal sector of the country. The devaluation of the Chinese currency in terms of other currencies will reduce the level of employment in the formal sector of the country and will increase the level of unemployment in the country as large section of the country’s industrial sector is dependent upon the indigenous technologies. If the country is made open with significant reduction in the value of the Yuan, then it is most likely that the business leaders of the global enterprises will start investing in the industrial sector of the country. This will induce significant level of foreign technologies across the country that will increase the level of unemployment consisting of those laborers who are unable to work with those foreign technologies. However, the notion that the devaluation will reduce the level of employment and will hurt the growth process of the country is not entirely true. This is due to the fact that currency devaluation will increase the level of country’s exports of different goods and services. This will also induce the indigenous products and services to reach the global market and thus the level of production of these goods and services will rise up. This will essentially increase the level of income in these indigenous industries and thus the level of investments in technological development will be raised. Hence, not only the future level of income will rise up, this will lead to greater level of development of various indigenous technologies (with the help of significant integration of indigenous technologies with global technologies). Hence, the level of future growth rate of income will also rise up in the country and this will be sustainable as well. Greater amounts of exports will also help the informal ...Download file to see next pagesRead More
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