To be, or not to be, that is the question. Hamlet’s greatest soliloquy is probably the best-known quote in Shakespeare’s literature. The thorny question that was recently posed to China and US is disputes over currency exchange.
As indicated in the cover story, the US side is contemplating on how much pressure they are going to put on the Chinese. In contrast, the Chinese government is calculating how much heat they can take both domestically and internationally.
According to the Wikipedia, for most of its early history, the RMB was pegged to the U.S. dollar (USD) at 2.46 yuan per USD. The RMB was devalued in the 1980s in order to improve Chinese exports. The official RMB/USD exchange rate depreciated to 8.62 yuan by 1994. The Chinese government maintained a peg of 8.27 yuan per USD from 1997 to 2005. On 21 July 2005, the peg was lifted. The most recent trading exchange rate in the market is at 6.83.
Both sides have much at stake on this issue. The shortage of migrant workers in the costal cities emerged after the Chinese New Year will definitely make China more cautious about appreciating RMB for fear of losing export competitiveness once the labor cost has been driven up.
As shown by the history, the value of RMB is not stationary and also changes with time. Therefore, it will certainly fall and rise with the market if free trade continues to be encouraged both domestically and internationally. The problem left is merely when and how much. Both sides should refrain from pushing its counterpart over the edge, which is definitely not good for global trade.