Decision To Downgrade The Yuan - Essay Example

One key reason for the devaluation of the Yuan to which the Chinese government and other players agree on is the fact that China is now willing to make financial reforms. The International Monetary Fund has, in particular, applauded the decision to downgrade the Yuan. The move is seen by both sides as part of measures by China to open up their financial systems and hence allow foreign exchange institutions to have more control over the value of the Yuan. Although the United States has been demanding that China embraces financial reforms they have rubbished the move claiming that the Chinese government is only doubling down.

The United States demands are based on their belief that China for years has been rigging the rules and played currency games that have left American workers to suffer. Additionally, policymakers in the United States have interpreted the move has a way of countering their trade agreements with China's rivals such as Japan in the Trans-Pacific Partnership. The decision to devalue the Yuan is part of currency manipulation games to gain an unfair trade advantage over the United States (Deng).One of the reasons that led to the downgrading of the Yuan according to China’s central bank is a way of shifting from an economy that depends on exports for growth to one that is based on consumer spending.

The decision would further try to deflate the real estate market. Chinese policymakers were increasingly frustrated by the strategy of the export-dependent economy.