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Finance & Accounting
Pages 3 (753 words)
Name: Course: Date: China: To Float or Not To Float? The global interaction of currencies has an impact on the way trade is undertaken. The exchange rates of one currency against another influence the value of imports and exports, and thus determines the balance of payment deficits or surpluses.
While this move is anticipated to benefit China’s trading partners, since they will be in a position to reap the benefit of a flexible currency exchange rate, which includes increasing the value of their exports to China, there is some dissent view amongst some economists, that doing that will have a negative implication on China and consequently on its trading partners (Alfaro and Tella, 7). On the event that China would make its currency exchange rate more flexible, a high rate of deflation will be experienced in China, which would result to economic decline. This is because; making the exchange rate flexible would mean that the Chinese currency will lose some value relative to other currencies, such as the US dollar. This would mean that the cost of doing business in china will increase, since the multinational corporations and other foreign investments to china will be force to cater for the cost of increased inflation. This might result to having most of the foreign investments or the multinational companies moving out of the Chinese market, and seeking to invest in other countries, where the cost of doing business will be relatively lower (Alfaro and Tella, 18). ...
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