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Accusation of devaluation of Yuan to stimulate exports

Lim Guohao

The accusation of China’s devaluation of Yuan to stimulate exports and the depreciation of US dollars have caused severe trade imbalance across the world (Abbugao, 2010).

On one hand, the priority concern of the US is that the persistent Chinese currency devaluation and cheap goods market will directly obstruct US and the world’s economic growth by lowering the cost of all primary factors of production. Thus, a further US$600-billion injection into the US economy has been proposed to further strengthen the US economy.

However, Abbugao (2010) argued that such movement could cause a repeat of the 1997-98 recession crises. As active shareholders of the US Treasury Bills, Asian countries feared that they would be expecting to face an unprecedented wave of hyperinflation as they fight to tackle currency surplus if US dollars continues to depreciate sharply (Wheatley, 2010).

Not only that, global stagflation will then be eventuated, resulting in high unemployment rates. Millions of people will then find the cost of food, shelter and healthcare unaffordable. Much more, according to the data released by the Global Times, if the Chinese Yuan were to reduce by 1 percent, more than 800,000 people in China will find themselves unemployed and unsheltered, which will then ignite severe social problems.

Thus, given the direct correlation between unemployment and mortality as raised by Schoeni (2010), it was predicted that countries would find it harder to feed its people, stoking starvation, eviction and the spread of fatal illnesses, ultimately leading to an increase of death rates.

Narcissistic approaches to economic reforms will escalate tension amongst countries, as each vies to achieve greatest benefits from the global economy. While top concerns are placed on economy upturns, I feel that countries should also pay close attention to domestic and foreign inflations, as any incendiary policies implemented would mean detriments to our global economy.

For instance, the devaluation of Chinese Yuan and depreciation of US dollar could set off trade imbalances and competitive global devaluation trends, leading to massive deficits in global currency exchange rates, thus discouraging investments and creating sluggish markets.

When such situations occur, costs of production will rise and firms are forced to retrench workers to prevent losses. With rising unemployment, basic necessities become unaffordable and it may lead to greater crime rates, causing social disorder.

More importantly, developing countries will be forced to lower exports prices in order to maintain price competitiveness. Lesser returns will be yielded, thus hindering economic growth, and harder to catch up with the global financial pace.

For tertiary students like us, massive inflationary rates will also cause impending impacts; steep rises in tuition fees and living costs leading to greater financial burden.

Hence, there is seemingly little of what developing nations can do, the decision all now lies with the superpowers, America and China, to decide the future of our global integrated economies.

However, as future leaders, we can make use of social media to reach out to the masses, by setting up “Superpowers, spare a dollar for the World” fan-pages on Facebook to gather at least 100,000 supporters so that it will be newsworthy for the traditional media, thus allowing the US and China government to gain greater awareness about this pressing situation.

Ultimately, money is nothing but paper. It is the right human mindset that is most critical for survival, not economy.

Written as part of the assignment for Ngee Ann Polytechnic’s Global Issues: Singapore Perspectives module.