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China: From Drag to Dragon

What's the Big Idea?

The conventional wisdom among economists just a few years ago was that China was manipulating its currency, causing a significant drag on the global economy. Holding down the value of its currency made exports cheaper and thus China more competitive in the global marketplace.

As Big Think Chief economist Daniel Altman points out in the video below, this story isn't true anymore. 

"China has allowed the Yuan to appreciate in value against the dollar and Euro and other major currencies," Altman says, "and now there are very few analysts who would say that it's artificially depressed."

The big question, according to Altman, is when will the Chinese Yuan become a currency "that we can freely exchange at any rate we want without inference by the government, without any rules about how we can trade this currency?" When that happens, Altman says, "the Chinese Yuan could become a reserve currency around the world."

 

Watch the video here:

What's the Significance?

When exactly the Chinese Yuan will become convertible is "an interesting speculative bet for investors," Altman says. But narrowing trade surpluses are indication right now that the Chinese Yuan is not really overvalued." 

Furthermore, these imports are a good sign in that they are "a signal that Chinese consumers have a lot more buying power," Altman says. "And that's very important for China."

Image courtesy of Shutterstock

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