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robert237 Post time: 2013-12-25 11:42
U.S. dollars are worth only the paper they are printed on. The yuan is backed by the biggest
It is true that the value of the Chinese Yuan is based on China's ability to deliver goods or services on presentation with the Yuan currency it had issued, and is thus more likely to be accepted by other countries on that basis. However, countries that refuse to use the dollar face destabilization and revolutions, such that out of necessity rather than desire, they still have to use the dollar. For this reason, the Yuan is unlikely to make significant headway in becoming the reserve currency of the world.
On the other hand, by revaluing its currency upward using its own dollar reserves to buy up Yuans from foreign investors, China gains nothing and loses both its market share (domestic and foreign) and also loses its hard earned foreign reserves (in dollars).
The former is a fact of life. The latter is a policy choice that does China nothing good, and everything bad. Facing the former is not a matter of choice for China. Continuing the latter monetary policy is, however, entirely avoidable, and should be corrected as soon as possible, to avoid China's growth dropping further, and its foreign currency reserve from being spent as soon as it is earned in a totally useless manner that does not benefit China in any way, and hurts her manufacturing section as well as her currency reserves.
The current Chinese Central Bank policy regarding the use of its foreign reserves to bolster a higher exchange rate for the Yuan is destructive of China's manufacturing sector and overall economic growth, and reduces China's foreign reserves unnecessarily.