China's Currency: A Summary of the Economic Issues
Abstract
Many Members of Congress charge that China's policy of accumulating foreign reserves (especially U.S. dollars) to influence the value of its currency constitutes a form of currency manipulation intended to make its exports cheaper and imports into China more expensive than they would be under free market conditions. They further contend that this policy has caused a surge in the U.S. trade deficit with China and has been a major factor in the loss of U.S. manufacturing jobs. Although China made modest reforms to its currency policy in 2005, resulting in a gradual appreciation of its currency (about 19% through mid-April 2009), many Members contend the reforms have not gone far enough and have warned of potential punitive legislative action. Although an undervalued Chinese currency has likely hurt some sectors of the U.S. economy, it has also benefited others. For example, consumers have gained from the supply of low-cost Chinese goods (which helps to control inflation), as well as U.S. firms using Chinese-made parts and materials (which helps such firms become more globally competitive). In addition, China has used its abundant foreign exchange reserves to buy U.S. securities, including U.S. Treasury securities, which are used to fund the Federal budget deficit. Such purchases help keep U.S. interest rates relatively low.
Document Details
- Document Type
- Technical Report
- Publication Date
- Apr 13, 2009
- Accession Number
- ADA498382
Entities
People
- Marc Labonte
- Wayne M. Morrison
Organizations
- Library of Congress