The Chinese yuan rose about 5% against the dollar last year. That’s nowhere near fast enough to satisfy U.S. lawmakers or manufacturers, who claim the exchange rate gives China an unfair trade advantage.
But Benjamin Wey, president of New York Global Group, says Beijing has good reasons for not moving faster.
“If Chinese currency appreciates too much, that means that China-made goods become more expensive. That also means export demand could go down, and that also means domestic loss of jobs in China.”
Wey also points to lessons Beijing drew from the 1997 Asian financial crisis.
“The Asian countries like Thailand and so forth, those countries were attacked because of currency weakness. Global money really went down to those countries and hit those currencies very hard, which impacted the domestic economy in those Asian countries. And China is the same way. The Chinese currency free floating in the inflationary environment as China is experiencing currently, there could be the potential of a flood toward turning the Chinese currency into U.S. dollars.”
Facing those prospects, China isn’t likely to make the yuan freely tradable against the dollar any time soon.