U.S. Foreign Exchange
The number of international corporations and financial professionals that follow the ever-changing ratio of U.S. dollars to Chinese Yuan has increased and expanded beyond its borders. This is an indication of just how critical the trade relationship that binds the world’s two largest economies has become. Although the relationship between the United States, Canada and Mexico continues to be even more robust than the Sino-American arrangement, the consumer economy of the United States is heavily dependent upon smooth flows of goods from the workshops of China to the Pacific ports of California and Washington State. In many ways, the continued harmonious economic relationship is as important to the United States as modern technological innovations in the financial field (such as the latest trading and communications technologies, see OANDA for more information).
U.S. Foreign Exchange, the Yuan and the Flow of Goods
The value of the yuan has a tremendous influence on these flows of goods. Most of the export-ready products that Chinese factories produce for American consumption are low-margin consumer goods that require labor and raw materials to produce. Since these goods must be shipped thousands of miles across the ocean, global fuel prices add a significant and non-negotiable premium onto their final cost. As such, Chinese manufacturers have a keen interest in ensuring that the value of the yuan remains low enough to offset the added expense of bringing their products to market in the United States.
China’s Devaluation of the Yuan
The Chinese yuan used to be pegged the US Dollar to facilitate trade, this ended in 2005. Business deals were still denominated in dollars but [Read more...]