1. Currently, the yuan is not a convertible currency, meaning that Chinese individuals are not permitted to exchange their yuan for dollars to invest abroad. Moreover, companies operating in China must convert all their foreign exchange earnings into yuan. Suppose China were to relax these currency controls and restraints on capital outflows. What would happen to the pressure on the yuan to revalue? Explain.
2. In 2011, six years later, the U.S. Senate was again considering a bill that would punish China for suppressing the value of its currency to give its exports a competitive advantage. Why have both the Bush and Obama administrations, one Republican and the other Democratic, resisted such legislation?