Can China make devaluation work?

Article Abstract:

China's devaluation of its yuan currency is imminent, and while it promises potential advantages it also holds a number of risks. Properly implemented in conjunction with a new package of economic reforms, a devaluated yuan could make for both a stable China and a stable region. On the other hand, a cheaper yuan could result in significant regional and world economic instability. Yet China is left with no choice except to devalue because its economy has continued to deteriorate despite the adoption of a number of short-term measures by the government.

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China should reflate, not devalue

Article Abstract:

China's planned devaluation of its currency should instead be diverted to efforts to reflate the economy because devaluation might damage its economy. Analysts view deflation as unnecessary because of the robust performance of Chinese exports in foreign markets. Moreover, the growth in exports is coinciding with the gradual economic recovery of Asian nations. On the other hand, the expansion of China's monetary base should be prioritized by the government. In addition, social welfare should be improved to achieve a permanent wealth effect in China.

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China is torn over renminbi controls

Article Abstract:

China is ambivalent over full current-account convertibility, which it hopes to achieve by the end of 1996. While it recognizes the benefits of making the renminbi fully convertible on the current account, it is reluctant to lose its control over the currency. In view of the current cyclical downturn, convertibility would be ideal as such periods are more favorable to exchange-rate reform compared with inflationary periods, since the risk of drastic fluctuations in the exchange rate that reform can trigger is diminished.

Analysis, Balance of payments, Convertible money

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