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The Yuan vs. the Dollar: China and the United States are Already in a "Hot" War

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Final rept. Aug 2004-Jun 2005

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The United States and China are now in a Hot War. This Hot War is named as such because it is a money-centric conflict where speculative money Le., Hot money in FOREX reigns as an instrument of economic and financial power. Ironically, just as the Cold War symbolically ended with the fall of the Berlin Wall, this Hot War began with another fall the managed fall of the U.S. Dollar USD that began in 2002. As Chinas economic health improves, its currency is increasing pressured to float from its pegged state. The relationship of the CYN to the USD not only challenges U.S. economic and financial power, but also stresses U.S. national security interests. To fully understand this Hot War, the United States must study the history of the CYN and the pegging and floating processes of the CYN. Understanding this background will enable the United States to comprehend how the Chinese authorities will use this currency instrument in the battles of this Hot War. The battles of this Hot War will be fought over or manifested in several issues the current account imbalance, economic growth Chinese and American, regional and external outreach efforts, and the obvious future relationship between these two currencies. To excel in this Hot War the United States must pursue three objectives maintain a more attractive economy than China, maintain more attractive financial markets than China, and maintain the worlds leading reserve currency. To not maintain these positions is to give up shares in the markets of world power and influence and thus to accept unnecessary risk in obtaining U.S. national security goals.

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  • Economics and Cost Analysis
  • Government and Political Science

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