Pros and Cons of a China Revaluation

From time to time, political furor erupts over the exchange rate between the Chinese yuan and the U.S. dollar. Many people claim that an undervalued yuan makes Chinese goods unfairly inexpensive for U.S. consumers relative to competing products of U.S. companies. An undervalued yuan (also known as the renminbi) also crimps U.S. exports to China, the argument goes. But a higher yuan could make Chinese goods more expensive for U.S. consumers, resulting in higher inflation that erodes living standards in the U.S.

Of course, since China is one of the leading buyers of U.S. Treasuries and other investments, and since U.S. consumers have grown dependent on a supply of cheap Chinese-made goods (many of which aren't even made here anymore), the notion of pressuring China to allow the yuan to appreciate hasn't gotten much traction other than a lot of hot air. The issue does erupt as a hot button from time to time, though. And since this is an election year, the Obama administration may more aggressively prosecute a currency revaluation agenda, as also might Republican contenders for Congress or the presidency....665 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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