Question

1. Compare two statements about exchange rates that Henry Paulson, Treasury secretary under President Bush, made in 2007: (1) “A strong dollar is in our nation’s interest.” (2) “The currency [China’s yuan] needs to appreciate, and it needs to appreciate faster.” Are the two statements consistent with one another? Why might the same official make both statements?

Answer 1

Yes, both the statements are consistent with one another, as He said prospects for achieving balanced growth in China and the world economy would be much greater if China let its yuan currency rise in value more quickly immediately and let markets set its value completely in the medium term.

He further said that The yuan has risen only about 8 percent against the dollar since it was unpegged from the U.S. currency in July 2005 and it has fallen against the euro, aggravating tensions between the United States and Europe and prompting Group of Seven industrial nations on the weekend to unite in demanding a faster yuan rise.

As the United States and China become increasingly interdependent through trade and other ties, they need to learn how to handle problems between themselves more effectively. The effectiveness with which China manages these issues will have long-term implications for U.S.-China trade relations, the integration of China into the global trading system and the sustainability of China’s economic growth trajectory.

So in this way, the growth of the US Dollar and Chinese Yuan, both will work as a profit to the development of US market and trading.