On one of my finals tomorow, I'm going to have to know about Greenspan's view on the Yuan and what the implcations are for unpegging the dollar. In the review session, the TA said that the Yuan is articifically inflated and pegged at that rate. Unpegging the rate would cause their currency to depreciate. This would make Chinese goods cheaper for us and lower our trade deficit. This would kinda screw the Cinese becuase they would be getting less for their goods, but their costs would be the same.

However, I looked online to get some mroe information, and sources are telling me that the Yuan is undervalued , which is the opposte of wht the TA said. Which is true? and if it is undervalued, why does greenspan want it to be un-pegged?

Thanks for your help guys!

 

Right now, in what I am hearing on the news, is that the unfavorable balance of trade rests on the INEXPENSIVE Yuan which implies that US Factories get shipped overseas to China so that the factories can save on labor costs.

This is the exportation of manufacturing jobs because the Yuan currency makes it a great value to do business there in China, but at the same time its having the opposite effect domestically here in the United States because we are losing jobs and losing tax revenue from these moving manufacturers!

So if you are for US interests, you would want the Yuan to INCREASE in value to lessen the severity of UNDERCUTTING the value of US dollar pay for manufacturing jobs in the states.

However, if you are for Chinese interests, you would want the Yuan to remain cheap and be valued as inexpensive by global manufacturing businesses so that they can set up shop in your country and you can collect tax dues.

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Now the question about pegging interest rates for the dollar: I believe keeping it pegged will keep the dollar's value low so it can compete better, be viewed as more attractive, against the Yuan. The US needs every trade advantage we can get against the Yuan to compete for a more favorable balance of trade and to keep in check the trade "imbalance" between the two nations.

Trade deficit is just simply a matter of exporting less than importing: Export more than you import and the deficit will disappear, and vice versa.

So putting the two ideas together, pegging interest rates ---> keeps value of the dollar in check so it won't get inflated and be viewed as too expensive against a more competitive yuan currency ---> helps fight the trade imbalance --> helps fight trade deficit.

This is how I understand the situation and its chain of consequences. Your theory taught in school may be different. My two cents only.

 

Since you are looking for Greenspan's view you should it.
Try Greenspan Yaun or Fed Yaun