Here’s an interesting experiment: Take $100 in U.S. greenbacks and swap them for Chinese Yuan. Wait a year. Cash them in next April and see how many dollars you get back.
That’s not meant as financial advice — at least not yet. It’s an illustration of the contrast between the U.S. and Chinese economies. Last Friday, the value of the Chinese Yuan reached a record high against the dollar.
Financial pundits say the Yuan isn’t slowing down. They expect it to continue strengthening against the dollar this year, and they don’t foresee China following the present U.S. economic policy of debasing the native currency in order to circulate more money and stabilize debt payments.
China pegged the Yuan to the U.S. dollar in the mid-1990s — which means it fixed the Yuan’s exchange rate at a constant 8.27-to-1 ratio — and kept it there until 2005, followed by one more brief flirtation with the dollar in 2008.
The trade growth China was able to cultivate between the 1980s and today was greatly accelerated by the dollar’s relative strength: In 1985, China’s U.S. imports were valued at $4 million, a figure that had exploded to $337 billion by 2008. But since 2010, China has stepped out, with economic leaders confident they don’t need to tie the country’s currency fluctuations to that of the Greenback.
China’s preoccupation with reining in a runaway real estate market — a predicament similar to the last throes of the U.S. housing boom of the early 2000s — could adversely affect the value of its currency. But, like ships passing, the Chinese economy is ascendant relative to that of the U.S.; and if the housing market cripples China’s economy, it won’t be pretty here in the United States, either.