Tuesday 21st of May 2019

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U.S. Wants Dollar To Lose Value Against China’s Yuan

It’s a balancing act for President Barack Obama this week when he visits China, where he is expected to try to convince that nation’s leaders to let its currency increase in value against the U.S. dollar. While the measure ultimately would help the American economy by making goods from the United State less expensive for the Chinese, the president doesn’t want to make Chinese leaders angry.

China is the No. 1 lender to the United States. That’s cause for concern for the Chinese, who don’t want see a devalued dollar force down the value of its holdings.

Analysts say China is set to allow its currency’s value to increase against the U.S. currency, which could help manufacturers and the faltering economy in the United States.

However, the Chinese in turn are urging the United States to help its own currency. China’s top bank regulator said a decreasing U.S. currency and lower interest rates were negatively impacting asset prices around the world and raising an “insurmountable risk to the recovery of the world economy.”

Observers say it may be months before China adjusts the exchange rate of its yuan against the U.S. rival, which is about 6.8 yuan to the dollar.

Manufacturers in the United States want the Obama administration to encourage Beijing to hike the yuan’s value as much as possible after their export activities were harmed by China moving last year to peg the yuan to the dollar. They claim the yuan actually is below value by up to 40 percent.

China let the yuan climb about 20 percent against the U.S. dollar from 2005 to 2008. When the worldwide recession began negatively impacting China’s exports, the nation began tying the yuan to the dollar in mid-2008.

Decreased value in the currency typically would cause goods from the United States to be less pricey for Chinese consumers. But with the yuan so closely linked to the dollar, U.S. manufacturers haven’t been able to benefit.

As the dollar has fallen in value against major currencies, exports to Europe have benefited due to the dollar dropping about 18 percent against the euro since late winter. The dollar’s fall also has benefited China because of its tying the yuan to the dollar, making Chinese products less expensive in Europe and other nations whose currencies have increased against the dollar. An increase in the yuan would make goods produced in China more expensive.

A weakened yuan benefits American consumers and retailers that buy Chinese imports. However, many countries have criticized the yuan’s close link to a weaker American currency. Some even have tried to curb the dollar’s increase against their currencies by buying U.S currency.