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China’s economy is not as dependent on exports .International trade contributed a little less than nothing to the country’s growth in the first half of this year. And imports have remained strong.Loans worth perhaps 2 trillion-3 trillion yuan ($310 billion-630 billion) may have already turned sour, according to China’s banking regulator.
CHINA'S currency has long been undervalued, and this undervaluation has long been a sore spot for China's trading partners. American officials, in particular, have been upset by the impact of a cheap yuan on America's trade balance with China, and by the impact of that imbalance on employment. China allowed its currency to appreciate nearly 20% against the dollar from 2005 to 2008, but it halted the rise in 2008 out of concern for the impact of the global downturn on its export-oriented economy. Last year, as it was clear that China's economy was once more running at full steam appreciation resumed. the rise in the yuan has been fairly steady and has so far amounted to an appreciation of about 4.6%.
Demand for yuan reserves would push up the exchange rate, discourage exports and give China’s consumers greater purchasing power. A push for reserve status for the yuan would go hand in hand with the development of China’s financial system—a necessary step to support the small- and medium-size businesses it needs to serve its domestic market, and for many other reasons.
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