“Undervalued Chinese Yuan against US Dollars and Other Countries Ethical Issues”

Jennifer R. Pelaez

The author is Teacher at Santos Ventura National High School In this time the undervaluation of the Chinese currency is an ethical issue because of globalization, function independence is being talk about. Countries should have a one sided economy because of China is trying to do currency continuously keeps its currency valuation low. As the China, world's second largest economy, challenge America’s dominance includes a push to set the yuan, on a similar footing to the U.S. dollar as the world’s reserve currency. Whether the Chinese currency will ever reach the international prestige that the greenback now holds is a matter of speculation. The dollar has been the world's de facto reserve currency since displacing the British pound sterling around the middle of the last century. If China's yuan will be granted include in the International Monetary Fund into its special drawing rights (SDR) basket of reserve currencies that include the U.S. dollar, euro, pound and yen it will still have a very long way to go to rival the dollar’s preeminence as the international reserve currency of choice. According to some events including a sudden 2% devaluation of the yuan and the Chinese government's intervention in its plummeting stock market both signal that the yuan will not be challenging the dollar’s dominance very soon. The two primary criteria for inclusion in the SDR basket are that issuing countries of basket currencies possess the biggest value of exports over a five-years and that their currencies are free to be use. The first ensures that only the currencies of countries that play a dominant role in the global economy qualify for inclusion, while the second requirement ensures that only currencies widely traded and used for international payments will be included. The first criteria of China’s significant place in international trade whether or not the yuan meets the second criterion is not clear. Some argue that China’s exchangerate interventions violate this second criteria. But the Deputy of the IMF’s Strategy, Policy, and Review Department has publicly stated that that the IMF's free-usability concept is “distinct from whether a currency is either freely floating or fully convertible.” And because of that China’s management of the value of the yuan doesn’t exclude it from the IMF’s SDR reserve currency considerations. Because of weakerthan-expected economic growth, The People's Bank of China recently devalued the yuan by almost 2% relative to the U.S. dollar for two consecutive days. Some argued the move was an act of currency manipulation by the Chinese central bank to boost exports. Regardless, the move may actually help the yuan gain acceptance into the SDR currency basket. The currency has been loosely pegged to the dollar for a number of years, and the latest devaluation is actually more consistent with a market-determined valuation. The devaluation was welcomed by the IMF, which made it clear that it would have no direct impact on China’s goal of earning reserve currency status. Nonetheless, other concerns center on the Chinese government's recent intervention to halt a nearly $4 trillion stock market rout. IMF Managing Director Christine Lagarde indicated that the intervention did not disqualify the yuan from inclusion, but she did say that the IMF still needs to do significant amount of work before arriving at a final decision. After the stock-market intervention, that decision may be postponed another nine months, until September 2016. Lagarde has also publicly stated that the real question is when the Chinese currency will be included, rather than whether it will. Somehow it doesn’t really affects other countries on China’s strategy on whether they maintain a specific yuan rate or not because it’s their money that is going to maintain a specific rate but in the long run it will affect the US dollar because if the dollar is high and the yuan is at its equal level, Chinas yuan will gain much when it comes to money because yuan will always gain interest but if the dollar is low yuan will just have to maintain a specific amount till the dollar will again go high. But they will not have to exert too much money as the US does when they have low money rate. It will all boils down to whatever strategy of China that works for them best is that it’s their prerogative to do so if in the case of ripple effect we cannot turn the switch off on that because it is their financial strategy in doing so that is why they gain lots of money, may be the United states should find another way to make their dollar gain high value that can also satisfy their situations.

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