This blog post from June has proven spot on regarding the pegging policy of China:
Simply put, I do not thing the Chinese government will change its policy of currency pegging anytime soon. Two powerful reasons underpin my viewpoint:
1. Removing the currency peg would likely cause widespread business collapse in China, especially among exporters. This is a major political constraint.
2. Pegging is fundamental to China's long-term aspiration to be the #1 economy in the world. Rising nationalism is ever present in the country.
The Chinese are good people. However, central government policies are counter to the international rules of engagement for trade.
A top priority for the President and Congress should be to formulate a reasonable strategy to deal with the current Chinese policies. I believe that the American political system is more than capable of determining the right thing to do.
In general, I welcome economic growth in China. However, if growth is at the expense of trading partners then it is hard to understand why this is good for America and the global economy.
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