One yuan is equal to 0.16 USD. It is too early to talk about the true exchange rate between the yuan and USD.
Firstly, the currency of China is not flexible as compared to the USD. There is a low interest rate in China, which is why currency values remain the same. The GDP of China is 11.2 trillion USD, whereas the GDP of the US is 18.57 trillion USD. There is a huge difference in the GDPs of both countries. China is facing a large trade surplus, while the USA faced a deficit during the Era of George Bush. China is now one of the biggest markets in the world. They are trading all over the world.
Problems
One of the biggest problems faced by China is volatility. For example, in 2015, there was a dramatic loss in China’s stock market, and the loss was around 39 billion USD. Investors are fed up with the volatility of China and don’t want to invest in the stock market. Among the top stock markets is the New York Stock Exchange.
Liquidity has been tight since 2016 as China has invested in a lot of countries. The major investment is about 46b USD. Therefore, the issue is still there as liquidity must be present, but China’s liquidity is so tight at the present situation.
The other problem China faces is that it has offshore companies. The Chinese are setting the trend of offshore companies evading taxes. Nowadays, offshore banking is the best way to evade taxes, but the Bank of China denies that it is behind it.
Financial regulation is another problem for China in terms of maintaining its high currency. The USA doesn’t want China to cross them and wants its regulation all over the world.
Solution
China needs to maintain its performance high in the outside world, especially in exports.
They need to have a higher tax ratio to increase their GDP. Currently, China’s GDP ratio is 20%, but it still has the capability to increase that. And can meet up to the level of the United States.
China has a saving percentage of 50%, which is too high among all the countries.
Financial and non-financial institutions can play a key role in raising the money. They can generate funds from the money market, sell securities, and moreover attract investors.
The more the investors, the more the income, and the more the economy will grow.
India is also one of the threats faced by China as it is also boosting the economy of Asia, and the population of India and China is nearly equal.
USA Stance
Trump guaranteed to name China a cash controller in the White House. As of late, in any case, China has been interceding to keep its cash high, not low. It handed over another great development execution in 2016, with a 6.7 per cent extension. In any case, it assumed a great deal of praise to create this development, and thus, dangers are developing in China. One hazard is an exemplary money-related emergency; another hazard is the uncontrollable cheapening of the cash-driven by showcase powers. China can most likely keep away from a hard finding this year, yet it depends on impromptu measures that toss sand in the wheels of ordinary business.
In any case, it is distinctive that the USA is forcing diverse strategies to stop China from avoiding the market in Europe.
So, it is too early to say what the true exchange rate could be as there is volatility in China’s market. But with the recent performance of China, it can be predicted that if it goes the same way as China is performing economy-wise in the world, it can take over the USD after some time, but at this moment, it is too early to say when it will be possible.
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