Article;
Why Doing Business in China Takes a Lot of Cash
Comment;
The highest
denomination is rmb 100 which is near to the $100 highest denomination in the
US but people hold five-times more cash in China than in the US. It means money
supply is higher in China than the US. High money-supply means a weaker
currency. It (China) has kept money-supply high in order to gain from cheap currency and cheap exports. This is
what the US objects "an artficially low exchange rate and low value of
money to gain advantage from cheap exports." China is expected to overtake
the US in 2018, so by that standard we can expect the rmb-dollar exchange to
equalize near that period. Meanwhile we are going to witness an appreciation in
rmb during this period and a debate to include rmb as a reserve currency like
dollar. Chinese interest rate are lower than the Indian rates it means it is
opting for a loose monetary policy to gain advantage in exports even when its
main trading partners are facing recession and weak demand. If China wants rmb
to get the status of reserve currency it needs to let its currency float near
to the value of dollar.
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