RMB’s Depreciation Effect on the US MNCs Essay

Exclusively available on Available only on IvyPanda® Made by Human No AI

Is RMB trading at fair value?

One of the subjects that have continued to raise a discussion is if the Chinese Yuan has been trading at its fair value. In 2007, China’s GDP was estimated to be over 10%, which was considered as its peak. The current-account surplus during the same year provided a strong indication that RMB was undervalued. However, this proof is less convincing now.

At the moment, the RMB is more than 30 % resilient in actual trade-weighted terms as compared to the year 2005. This has happened after its peg to the U.S dollar was scrapped. Fairly, China’s current-account surplus declined to 2.8% of GDP in the year 2011 (Taillard 67).

The most standard approach in estimating the actual worth of a state’s currency is to evaluate the exchange rate required to bring its current-account inequity to a “standard” level. According to economic analysts, a current-account surplus or shortfall of not more than 3% of the GDP is tolerable.

According to International Monetary Fund, China’s current account surplus was expected to decline to just 2.3% of GDP the last year, and progressively increase to slightly more than 4% of GDP by the year 2017. This was in contradiction to the earlier estimations which were 6.3% and 8% respectively.

The IMF’s novel predictions indicate that, on average, China’s current account surplus should be 3.2 per cent in the next 7 years. If this estimation is accurate, then it is wrong to claim that RMB is considerably undervalued (Feenstra and Wei 268).

Impact that RMB’s appreciation or depreciation would have on U.S. MNCs

The RMB’s appreciation or depreciation will affect the cost of imports and exports across China. When the exchange rate of RMB depreciates, the cost of Chinese exports would be comparatively low. Conversely, the products exported to China from the U.S would be relatively costly.

Consequently, the cost of U.S multinational corporations’ exports and manufacturing of their merchandises that compete with China’s importations would decrease. Even though most of the affected corporations would be in the manufacturing sector, service companies would not be spared either. The overall impact of this would be an increment in the trade deficit.

It would also cut on the increased demand for such commodities and services. All these impacts would be experienced in the short run. If the exchange rate policy caused the RMB value to depreciate, then it would be so under the influence of demand and supply.

Some U.S MNCs also import raw materials and capital equipment from China. If the value of RMB depreciates, the cost of these products would be low. This increases their output making such MNCs’ products more competitive globally (Minikin and Lau, 104).

Works Cited

Feenstra, Robert C, and Shang-Jin Wei.China’s Growing Role in World Trade. Chicago: University of Chicago Press, 2010. Print

Minikin, Robert, and Kelvin Lau.The Offshore Renminbi: The Rise of the Chinese Currency and Its Global Future. New York: Wiley, 2013. Print

Taillard, Michael. Economics and Modern Warfare: The Invisible Fist of the Market. New York: Palgrave Macmillan, 2012. Print

More related papers Related Essay Examples
Cite This paper
You're welcome to use this sample in your assignment. Be sure to cite it correctly

Reference

IvyPanda. (2019, July 9). RMB's Depreciation Effect on the US MNCs. https://ivypanda.com/essays/rmb-in-china/

Work Cited

"RMB's Depreciation Effect on the US MNCs." IvyPanda, 9 July 2019, ivypanda.com/essays/rmb-in-china/.

References

IvyPanda. (2019) 'RMB's Depreciation Effect on the US MNCs'. 9 July.

References

IvyPanda. 2019. "RMB's Depreciation Effect on the US MNCs." July 9, 2019. https://ivypanda.com/essays/rmb-in-china/.

1. IvyPanda. "RMB's Depreciation Effect on the US MNCs." July 9, 2019. https://ivypanda.com/essays/rmb-in-china/.


Bibliography


IvyPanda. "RMB's Depreciation Effect on the US MNCs." July 9, 2019. https://ivypanda.com/essays/rmb-in-china/.

If, for any reason, you believe that this content should not be published on our website, please request its removal.
Updated:
This academic paper example has been carefully picked, checked and refined by our editorial team.
No AI was involved: only quilified experts contributed.
You are free to use it for the following purposes:
  • To find inspiration for your paper and overcome writer’s block
  • As a source of information (ensure proper referencing)
  • As a template for you assignment
Privacy Settings

IvyPanda uses cookies and similar technologies to enhance your experience, enabling functionalities such as:

  • Basic site functions
  • Ensuring secure, safe transactions
  • Secure account login
  • Remembering account, browser, and regional preferences
  • Remembering privacy and security settings
  • Analyzing site traffic and usage
  • Personalized search, content, and recommendations
  • Displaying relevant, targeted ads on and off IvyPanda

Please refer to IvyPanda's Cookies Policy and Privacy Policy for detailed information.

Required Cookies & Technologies
Always active

Certain technologies we use are essential for critical functions such as security and site integrity, account authentication, security and privacy preferences, internal site usage and maintenance data, and ensuring the site operates correctly for browsing and transactions.

Site Customization

Cookies and similar technologies are used to enhance your experience by:

  • Remembering general and regional preferences
  • Personalizing content, search, recommendations, and offers

Some functions, such as personalized recommendations, account preferences, or localization, may not work correctly without these technologies. For more details, please refer to IvyPanda's Cookies Policy.

Personalized Advertising

To enable personalized advertising (such as interest-based ads), we may share your data with our marketing and advertising partners using cookies and other technologies. These partners may have their own information collected about you. Turning off the personalized advertising setting won't stop you from seeing IvyPanda ads, but it may make the ads you see less relevant or more repetitive.

Personalized advertising may be considered a "sale" or "sharing" of the information under California and other state privacy laws, and you may have the right to opt out. Turning off personalized advertising allows you to exercise your right to opt out. Learn more in IvyPanda's Cookies Policy and Privacy Policy.

1 / 1