1 yuan is equal to 0.16 USD. It is too early to tell about the true exchange rate between yuan and USD.
Firstly talking about currency of china it is not flexible as compare to USD. There is low interest rate in China that is why currency values remains the same. The GDP of China is 11.2 Trillion USD where as GDP of USD is 18.57 Trillion USD. There is huge difference among the GDPs of both the countries. China is facing a lot of trade surplus while the USA has faced deficit in 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 problem faced by china is volatility for example 2015 there were dramatically loss in the stock market of china and loss was around 39 billion USD. Investors are fed up due to the volatility of the china and don’t want to invest in the stock market. Among the top market in stocks is of New York stock exchange.
Liquidity has been tight since 2016 as china had invested in a lot of countries the major investment is about 46b USD. So therefore the issue is still there as liquidity must be present but china’s liquidity is so tight at present situation.
The other problem faced by china is they are having offshore companies. The Chinese are setting the trend to have offshore company to evade taxes. As nowadays offshore is the best way to evade tax. But Bank of China is denying that they are not behind it.
Financial regulation is another problem for the china to maintain its currency high. As 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 more tax ratio so that to increase their GDP. Currently tax to GDP ratio of china is 20% still they have capability to increase that. And can meet up to level of United States.
China has saving percentage of 50% which is too much high among all the countries.
Financial and non financial institutions can play a key role in raising the money. They can generate funds from money market can sell securities and moreover can attract the investors
More the investors more the income and more the economy will grow.
India is also one of the threat face by china as it is also boosting economy of the 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 percent extension. In any case, it assumed a great deal of praise to create this development—thus; dangers are developing in China. One hazard is of an exemplary money related emergency; another hazard is uncontrollable cheapening of the cash driven by showcase powers. China can most likely keep away from a hard finding this year, yet it is depending on impromptu measures that toss sand in the wheels of ordinary business.
In any case, available it is distinctive USA is forcing diverse strategies to stop china to avoid the market of Europe.
So it is too early to say that what could be true exchange rate as there is a volatility in the market of the China. But with recent performance of china it can be predicted that if it goes same way like 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.
