The value of the Chinese yuan, or RMB, has been a sore spot in U.S.-China relations in recent years. Faced with a massive $256.3 billion trade deficit with China for 2007 that has increased over three times since 2000 ($83.8 billion) and continues to increase annually, Washington has called on Beijing to revalue its currency based on the presumption that it is set artificially low against the dollar—maybe by as much as 40 percent [1]. Washington has demanded that the Chinese government take bold and concrete steps in raising the RMB’s value; Congress even threatened sanctions on China if it did not comply. China, however, has so far weathered the pressure for any dramatic appreciation of the yuan, citing domestic concerns and arguing that adjustments in the exchange rate will not significantly alter its trade surplus with the United States, nor would it cure America’s economic ills. Meanwhile, Beijing has made slow but gradual upward appreciation of the yuan while spending hundred of billions in dollars buying the United States’ growing debt. In January 2008, China spent $492.6 billion to purchase U.S. government treasury bonds making it the second-largest buyer of U.S. debt second only to Japan. With inflation in China reaching a record 8.7 percent in February 2008, the yuan’s appreciation will likely continue in part to fight domestic inflation, while the ripple effect of the sub-prime mortgage crisis in the United States continues to reverberate throughout the U.S. economy. Coupled with a presidential election campaign, debate over China’s currency policy will undoubtedly heat up in the coming months. Perhaps a look at what the Chinese are writing and reading will offer some insight into what Beijing is thinking.

Fanning the Flames of Currency Wars

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China Flexes Its Muscles on Wall Street Part I

China Flexes Its Muscles on Wall Street Part II

China Flexes Its Muscles on Wall Street Part III

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