What would happen if China decided to increase the strength of their currency? Wouldn't that allow more of it's citizens to have the purchasing power to buy their own products? What would be the benefit and the mistake of doing this?
It would decrease their exports. The world buys from China because they are cheap. A stronger Yuan means more expensive and less exports for them, which is why they peg to the dollar in essence decreasing the value of the Yuan as the dollar goes down.
The time to let it float would be if they were to use Yuan to buy oil instead of having to buy it with dollars. As long as oil is bought and sold in dollars, they won't let it float.
