What are the costs of China´s currency Policy?

Theme: What are the costs of China´s currency Policy?

When China was in crisis, the government decided to inject dollars into the economy through credit, increased the monetary base and government spending. This was part of their stimulus plan that allowed facing the complications involved in global economy due to the crisis; China was the first economy to recover from this situation.

For years China has been criticized the stability of exchange rate of the Yuan against the dollar, which rarely varies. Unlike other currencies, the exchange rate of the Yuan is a value established by the authorities and does not respond to free market criteria.

In fact, this fixing of the exchange rate has led to harsh criticism of many governments such us the US, the European Union and other countries concerned, as these countries cannot commercially compete with Chinese exports.

What they do is that by keeping the exchange rate fixed, the Chinese government has conducted the equivalent of a devaluation which has given Chinese exporters a competitive edge increasing to rivals, especially in regard to producers in other developing countries.

All this could mark the beginning of a new era in which China has a likely high chance to become, even if they don´t want it, the protagonist in northern economic world. Relax the Yuan could be the first step to their free float, free float and mark the route to its convertibility can reach the Yuan to be "the dollar's future."

China has a central bank itself, its own currency, its own data of inflation and economic growth. It has its own economic and monetary sovereignty, but, is a country also very connected to the world exclusively to the growing trade relationship with others. So… they cannot make decisions in isolation.

For economic growth in China to remain high, the government has provided loans to banks, which have come in the form of major infrastructure to the economy.

The Central Bank of China have to want to make flexible the Yuan because it is difficult, in the new context of international economic weakness, maintain the exchange rate based treasuring continue buying dollars and US bonds. But the country as a whole may fear the export model transition to the model of domestic consumption. Unemployment could be tremendous in areas dedicated to export and in that moment developed countries could want to take advantage of it.

So I think that the adjustment can only be gradual so that the country gets not that affected.

...