Wednesday, June 23, 2010

The revaluation of Yuan, is it going to set the growth path ahead or will it be the reason for fall?

China is the world’s largest developing economy with highest saving rate(50% of GDP) and forex reserves up to $2 trillion it has been been challenging and growing as a major threat to worlds most developed economies.
It’s been a while from the post recession heated talks about a new currency which could replace dollar, the focus of discussion was always China.The reasons were many why China did not revalue its currency and when you would look back now they all seem more like strategic decisions rather than succumbing to the situations as it seemed before

Here is China back with a boom not only revaluing its own currency but also making the whole world wonder about the reasons and the outcomes.

China which appeared as the biggest lender and savior of the US in the past today seems to be in a role reversal of sorts and now with the picture looking totally upside down we have a lot to discuss and a lot to learn.

The Chinese currency revaluation brought a new news across the world, would it bring positives for most of the world including India it is expected to give a tough time to US economic policy maker to formulate an easy way out.

Across the world the news was taken in different magnitude but in India we know that the stock prices jumped high, the oil prices followed them and than there is no commodity I guess which did not rise after the big news.

So why are the signals being speculated positively in India, What could Yuan’s revaluation possibly lead to?

  • Costlier imports for US largest importer of Chinese goods.
  • Higher cost of debt which US have to repay china(In May 2010, the US amount owes $900.2 billion to China)
  • Will give other nations of world a more competitive edge on their exports( India is one amongst them)
  • Increasing revenues for China on exports and debt interest.
  • Mitigation of the Euro falls as compared to it was before.

    But is their any other side of this picture? do we also have economies which have got tangled into a silk spool of china and going to fall?