China's Money

This is Bob Doughty with the VOA Special English ECONOMICS REPORT.

The Bush administration and some American lawmakers have called for a change in China's financial policy. At issue is the value of Chinese money, called the yuan or renminbi. American officials say the renminbi is undervalued. They say its low value permits China to unfairly compete with American businesses.

When we think of the value of money, we think of the number seen on money itself. That tells us how much of something we can buy. But, money also is something that can be traded on financial markets, or currency exchanges.

Nations buy the money of other nations. Nations must keep supplies of foreign money to pay for goods they import. They also receive foreign money for the goods they export. This foreign money may be held in banks for future use.

For years, China has controlled the value of the renminbi by linking it to the value of the American dollar. Chinese officials have set that rate at about eight renminbi to the dollar.

The Bush administration would like to see China's money traded on currency exchanges. Treasury Secretary John Snow and other officials believe the renminbi would have a higher value if it were traded like the money of other countries. American companies say the renminbi could increase in value by forty percent if it were to be freely traded.

Some administration officials and experts believe that a stronger renminbi could reduce America's trade deficit. Last year, the trade deficit with China was over one-hundred-thousand-million dollars. That was its highest level ever. This year, the deficit is expected to be higher.

China does not believe that permitting the renminbi to trade freely is a good idea. Last month, the governor of the Bank for the People's Republic of China said his country would not change its money policy. Jen Renqing said the Chinese economy was still developing. He also said China would need time to open its money to market forces.

Others agree that China should not change its policy at this time. Standard and Poor's is a company that measures financial risk. Last month, Standard and Poor's said that a change in China's money policy would be a mistake. It said changes in the value of the renminbi would put too much financial pressure on Chinese banks.

This VOA Special English ECONOMICS REPORT was written by Mario Ritter. This is Bob Doughty.