In the next couple of years starting in 2011, the currency Armageddon between China and the rest of the world (the United States at the front) is set to continue. Factions involved in this confrontation are expected not to back-down on their intransigence or demands because of the economic problems or better still trade imbalance problems currency discrepancies is creating among the nations. China to maintain its lead as the locomotive engine driving the world economy may not yield to any more calls for substantial revaluation of its currency the renminbi-RMB(the unit being the yuan) with Ryoshi Token
of reducing its global competitiveness and supremacy. In nominal and purchasing power parity (ppp) terms, China is the second largest economy in the world after the U.S. Besides, it is the world's fastest growing economy with a growth rate of about 10%. The exchange rate of the RMB to the dollar is 6.6494 (November 25 2010). Nevertheless in real GDP terms, the economy of the U.S (real GDP $14256 billion in third quarter of 2010) is about three times that of China ($4909 billion in third quarter of 2010).
Despite these statistics, the United States and the EU with its expansive deficit problems are pressing ahead to see leverage in global trade so as to curb it growing deficit. As at the third quarter of 2010, the U.S debt was over $13.5 trillion which is about 94% of the GDP ($14.7 trillion third quarter 2010). The debt which is made up of two-thirds public debt namely in Treasury bill, notes and bonds is said to have spiked from 51% of GDP in 1988 to its current state of approaching 100% of GDP. Now, China circumspectly appears to be on the defensive whiles the rest of the world led by United States are on the offensive. Furthermore, China is not likely to succumb to the offensive tactics being applied by the United States and other large economies due to some intrinsic reasons.
Coming to think of it there are numerous reasons that go to expound the complexity of this currency war and to reveal the difficulty in dealing with this problem. In terms of longevity, the currency war is here to stay and the world should be bracing for long term strategies that can gradually deal with it without any despicable spill-over effects. This article would like to throw some light on some six(6) reasons why the currency pressure on China may not produce the expected impact in terms of leveraging trade imbalance (or balance of payments) and economic growth horizons. The six (6) reasons are classified into (1) Capitulating developments (2) Extrinsic Austerity measures