China's economy has been and still is the one that grows the fastest, and it doesn't look like it will stop any time soon. Wikipedia says that the GDP in 2006 was "$2.68 trillion USD. Its GDP per person in 2005 was about US$1709 (US$7204 with PPP), which is still low compared to the rest of the world but is rising quickly. It has grown a lot thanks to the goods it has sold to other countries. To give you an idea of how big the trades are, it just passed Canada to become the US's biggest importer of goods. On http://www.forexplane.com, you can find a graph that goes with this article.
China's exports are growing at a dangerous rate, especially to countries with high consumption rates like the US and EU. Even though it exports a lot, it doesn't import much other than oil. Almost everything these countries buy from other countries comes from China, especially clothes and toys. How much is the Yuan worth on the market if this money is coming in from exports?
For more than a decade, one dollar could be exchanged for 8.28 Chinese Yuan. While this policy is meant to help the economy, especially by keeping prices low so that China's exports are cheaper than those from other countries, especially its Asian neighbours. This policy is the main reason why China is the world's largest exporter of goods. But because of pressure from the US, it has added 2 percent to the value of the yuan in a basket of currencies. The basket has small amounts of the British pound, the Thai baht, and the Russian ruble. It also has the U.S. dollar, the euro, the Japanese yen, and the South Korean won. In terms of US dollars, experts say that the value of the yuan goes up by about 5 percent each year. Overall, it is worth at least 40 percent less than it is now. This estimate is based on the GDP, the ratio of imports to exports, the public deficit, the interest rate, and the outlook for the economy in the future. It's still not a currency that can be used anywhere.
If the yuan was allowed to move freely on the market, the US dollar and many European countries would lose a lot of value. Inflation would also rise in many countries that buy a lot of goods from China. This is because all goods imported from China will now be 40 percent (an estimate based on the information above) more expensive. Also, these countries will have less money to buy things like oil that they need to import. For now, the fixed exchange rate is a problem for many countries that depend on cheap imports to keep their economies going.
China has made it easier for its value to rise steadily, but there are no signs that it's ready to let it float freely yet. The government doesn't think it's set up to handle sudden changes, like the loss of jobs. If the yuan starts to float freely, many governments will have to make big changes to get ready for the shock. It will be interesting to see how many other countries get sick when a country like China sneezes. The US economy would no longer be a major player in the world economy. More details: http://news.forexplane.com/Articles/Chineseyuan/tabid/136/Default.aspx
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