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Yuan Revaluation Debate

By Devin T. Stewart

Carnegie Council for Ethics in International Affairs, January 1, 2007

Asia’s growth is impacting global financial relations, but the debate about the Chinese currency, like that about the Japanese yen two decades ago, may be oversimplified. The battle over revaluing the yuan has big implications for the U.S. economy, U.S.-China relations, and the U.S.’s global leadership role. The highly integrated nature of the U.S. and Chinese economies – and a growing portion of the world for that matter – makes predicting the effect of a revaluation difficult. Some analysts believe that a revaluation would help cool down the Chinese economy, increase the buying power of the Chinese consumer, allow Southeast Asian nations to compete with China in areas such as textiles, and reduce China’s overall trade surplus. Others believe that revaluation would reduce China’s growth rate, increase the number of China’s bad loans, increase unemployment, reward currency speculators, and set into motion a deflationary an recessionary spiral similar to that of Japan in the 1990s.

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