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Free-Floating Currencies

The potential destabilization of an economy due to a free-floating currency must be a significant concern to any government, but especially in China where control is important for many reasons.

Iâ??ve been struck by a comment in The Kiplinger Letter (April 30, 2010) that stated that the current crisis in Greece is caused, in part, by the fact that the government â??canâ??t devalue its currency, so it canâ??t make itself more competitive that wayâ? (p. 3). In the case of Greece, the government is hindered in its response because it has adopted the Euro. Do you feel that China should be concerned about similar civil unrest if the yuan is not handled wisely?

Reference

The Kiplinger Letter (April 30, 2010). Euro Zone. The Kiplinger Washington Editors. Washington, D.C.

Solution Preview

Though there are no parallels to be made between the currency structure of the Renminbi or Yuan use in China, and the possible shift from the Euro to a return to the Drachma. Firstly, the Yuan is a free-floating currency which is not used by any other nation or economy. The Euro is used by the nations which comprise today's European Union and therefore multiple economies are affected by the governmental and political decisions affecting changes in monetary policy. ...

Solution Summary

Though there are no parallels to be made between the currency structure of the Renminbi or Yuan use in China, and the possible shift from the Euro to a return to the Drachma. Firstly, the Yuan is a free-floating currency which is not used by any other nation or economy. The Euro is used by the nations which comprise today's European Union and therefore multiple economies are affected by the governmental and political decisions ...

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