For the good of the global economy, China must end its fixed-rate currency policy

By Money Matters Editors

Memo to China: let your currency, the yuan, float, or be determined by market forces, in stages.

If you undertake the above measure, you’ll help your economy, and the global economy.

If you don’t, difficult conditions are up ahead for your economy, and the world’s, as well. Here’s why:

Keeping the yuan fixed at roughly 6.83 yuan to the U.S. dollar is only hastening  the day when China will have to transition to a more domestic-consumption-based economy. That’s because China’s artificially-cheap international products that stem from that fixed-rate are increasing protectionist sentiment in the United States, a key customer nation. Conversely, allowing the yuan to appreciate, in stages, may quell protectionist sentiment that’s building in Congress, enabling China to transition to a consumer economy more gradually. Failing to do so may result in Congressional tariff on China.