Singapore’s Finance minister has weighed into the debate about the yuan. Tharman Shanmugaratnam said on CNN that it now makes sense for China to let its currency appreciate.
“The exchange rate was an anchor of stability at a time when there was instability all around the place," he said. "Should they now go back to where they were before the crisis, which is the path of gradual appreciation with a more flexible exchange rate allowed? I think that’s sensible."
He followed up his argument by suggesting that inflation would be “an increasing concern in China”, and allowing the currency to rise would help alleviate price pressures and improve living standards.
Of course, allowing the yuan to rise is a double-edged sword. Not only will it make goods made in China more expensive for foreign buyers, but it will make goods manufactured abroad cheaper for Chinese consumers. Since the government is currently doing its best to boost domestic industry – both exporters and factories manufacturing for the domestic market – it is unlikely, in my opinion, to allow any rapid short-term rise in the currency value.
Meanwhile, the chief economist at the World Bank has pointed out that the United States would actually be hurt by any upward movement in the value of the yuan. Justin Yifu Lin pointed out that since most of the products that China exports to the US are no longer made by American factories, US consumers would have to pay more for their goods.