1. US Government was stronger than any other Government and hence, Chinese Government stabilized its economy by pegging Yuan’s value so that exports would not be expensive. Also, the other reason of doing this is to flourish their economy by producing goods for US. By pegging Yuan’s value in comparison to that of US dollars, China faced problems like purchasing US dollars every month and also they expanded their domestic supply in the market which could destabilize China’s economy. 2. The foreign enterprises would be in loss as the labour cost will increase, if China Yuan and US dollars float freely. Moreover, they would try to sell their products in China as buying capacity of Chinese people will rise. 3. If Yuan is allowed to flow freely, the foreign direct investment of China would suffer as China’s labour peoples purchasing power will increase and hence China will lose all their contracts jobs with other countries. 4. The free floating of Yuan will destabilize the economy as it will indirectly lead to price inflation of Chinese products. This would mean people from other states will take advantage of the growing power of China and intern make decrease China’s economy. 5. If US Government pushes Chinese Government to float Yuan freely, it would be beneficial to US as people in America would buy their own products instead of Chinese products. This would increase the production of American products and also, they could trade their products in China. 6. The Chinese government should try and maintain their peg as they are very successful to flourish and maintain their economy. If they maintain their peg, even though the US economy falls, they will be still successful to grow.
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