What's keeping the Chinese Yuan being overvalued against the dollar?

Question

Say if it did devalue itself at last against the American Dollar,how would it help the American Economy,especially our manufacturers whom still do a lot of exporting?,Could it bring American jobs back? Re-stregthen wages even?

Answer 1

The fact that America is seeing the sun set upon our world dominance, this is what is and will keep it overvalued.

Answer 2

The Chinese Yuan is not overvalued, it is undervalued.

The Yuan is not a freely floating currency but it is actively managed within certain limits against the dollar, making it unofficially pegged to the dollar. The reason why Chinese are keeping their currency low (somehow stable against the dollar) and do not want it to appreciate against the dollar as it is supposed to be is that the US is their main customers and China is a mainly exporting country (like many others in Asia). If the Yuan appreciate it will make their stuff Americans and others import from them more expensive which will kill their competitive advantage and suffocate their development.

The Chinese central bank is able to keep the currency low because they heavily buy US treasuries to increase their foreign reserves of dollars (and do some forex interventions ...). However these policy will and is leading to increased inflationary pressures in China which will sooner or later push their currency to appreciate.

Now, if China let its currency appreciate against the dollar, it is bad for Chinese as they will lose their attractiveness as a place with cheap labour and materials. But that does not mean jobs will come back to America. It is safer to say that in this situation, jobs will just move to another cheap-labor country (Vietnam, other African and Asian countries ...). Worse, if China let's its currency appreciate and/or loose its export competitiveness it will be even more devastating for the US. As the Yuan appreciates, it means that Chinese will not need to manage their currency anymore, that means that they will stop buying US treasuries and selling a big amount of what they are holding. We are talking about probably hundreds of billions of dollars worth of bonds which the Chinese will want to get rid off and redeem. The US will have to find the money to pay back Chinese for all these bonds (the money that we do not have) and will need to issue more bonds that nobody will want driving bonds costs (interests and yields) to the stratosphere and the US treasury to immediate bankruptcy.

Be careful what you wish for.

I believe that it is already too late that this will be solved without a major crisis. And it is all our fault. Nobody put a gun to our head and foreced us to offshore our jobs, isn't it?

EDIT: Sorry 'What?' I didn't see you already gave the answer.

Answer 3

the yuan isn't overvalued - it's undervalued!

if it were overvalued, then it would make chinese stuff more expensive, which is obviously not the case.

the chinese government prefers a weak yuan because it means an influx of foreign direct investment in the mainland, which will help the chinese economy evolve from being primarily agrarian to industrial, which is necessary for china if they want to be a superpower this century.

but anyway, the yuan still isn't a terribly significant currency.  it doesn't float freely, but is rather based on a basket of currencies designed to keep chinese foreign reserves from losing relative value.  and the trade volume between china and the usa isn't even that big anyway - people just like to blame yellow people for our lack of sufficient monetary policy.  in fact, pennsylvania trades more with california than all of china trades with all of the us.