International Economics: the Chinese Yuan and the US $

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International Economics: the Chinese Yuan and the US $
Abstract
Currency crises have been on the increase in the global markets. The various fiscal and monetary policies used by the world economies generate different kinds of fluctuations in the global currency markets. The crises that the US dollar has encountered in the past years have triggered proposals that another currency should be introduced as the reserve currency. The Yuan is one of the currencies that the global community proposes for a reserve currency. This paper has discussed the historical background of the dollar and the Yuan. The comparison of these currencies on the basis of market stability has been made. Models that are mainly used by fiscal policy makers to evaluate the regimes of currency exchange rates have also been discussed. The Mundell-Fleming model has shown that flexible exchange rate system is the best in maintaining balance in the global currency markets. This paper has concluded that the dollar is still the choice of many, since the Yuan has hugely been affected by the fixed rate system in China.
Introduction
The frequent economic declines and recessions in the world economies have triggered the establishment of various financial policies and economic initiatives. The last few decades have seen difficult economic times in many countries. The money markets have encountered numerous challenges during economic recessions. There is an overwhelming prospect of the American dollar losing grip in most of the world’s money markets. This is because there has emerged various stable currencies in the large economies, such as the European Euro and the Chinese Yuan. Crises have been experienced due to the consequent fluctuation of the US dollar, and the world may be headed for a change in the reserve currency situation. Perhaps, the Yuan might replace the US dollar as the world’s recognized reserve currency. However, this possibility is worth intensive evaluation so that economists and financial analysts can convince the world that this would be a sound move. This paper seeks to explore the impacts that would be generated by replacing the US dollar for Chinese Yuan, in terms of stabilizing the global currency markets to avoid economic crises that have occurred in the past.
The global currency markets are very sensitive to economic malpractices. Stock markets are some of the platforms that are hugely affected by fluctuations in foreign currencies, such as the reserve currency. Trade deficits have often resulted to a wobbling monetary situation in the United States, and the 2006 deficit of more than $700 billion can show the imminent possibility of the collapse of the dollar (Hagee, 2010, p.99). The unfavorable conditions that have occurred in the money markets as a result of trade deficits include deflation-inflation extremes and inadequacies in debt settling. These are notably the mo...