Essays on Chinese Exchange Rate Policy Article

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The paper "Chinese Exchange Rate Policy" is an outstanding example of a Finance & Accounting essay.   In July 2005, the Chinese government, through the Chinese Central Bank, announced the revaluation of the Yuan from 8.11 to the initial 8.27 per the United States dollar, indicating a small margin of 2.1 percent. The insignificant revaluation was however followed shortly by an announcement of an alteration of the exchange rate regime.   The central bank made a declaration that the Yuan would not be pegged on the United States dollar from then on. This paper discusses the debates over the Chinese exchange rate policy with particular attention given to the implications of having an ‘ undervalued’ exchange rate on the current account.

Further, possible scenarios that may happen if China’ s current account balance is adjusted at a more flexible exchange rate in the future are examined. Ongoing debates on the Chinese exchange rate China’ s exchange rate policy has triggered a contentious debate. An underlying line of argument is that China should reform its exchange rate system by shifting into a controlled floating or flexible exchange rate policy that is based entirely on the market supply and demand (Goldstein & Lardy 2008).

Some observers have argued that substantial undervaluation of the exchange rate for the current account, or renminbi (TMB), contribute significantly to economic imbalances globally (Goujon & Guerineau 2006). Some researchers have also argued that the undervaluation of the Yuan has given China an unfair trade benefit. Hence, China has been criticized for leading the “ currency manipulation” tactic that has triggered losses of jobs, in Japan, the UK, the US, and Asian countries (Corden 2009). On the other end, some commentators have asserted that any reasonable appreciation of the RMB has the potential to substantially impact positions of the global current account (Goujon & Guerineau 2006).

In any case, proponents of flexible exchange rate policy for China have appeared to have an upper hand arguing that such a flexible regime would be essential for internal balance as it presents policymakers with a monetary policy tool that is more effective (Morrison & Labonte 2010). Indeed, maintaining an ‘ undervalued’ exchange rate continues to have affected the extent of imbalances in the country’ s external payments (Goujon & Guerineau 2006).   Indications suggest that the country’ s RMB is substantially undervalued.

References

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Corden, M 2009, “China’s Exchange Rate Policy, its Current Account Surplus, and the Global Imbalances,” The Economic Journal, vol 119, viewed 30 Jan 2014, http://fbe.unimelb.edu.au/__data/assets/pdf_file/0009/775278/Chinas_Current_Account_Surplus.pdf

Garton, P & Chang, J 2005, The Chinese currency: how undervalued and how much does it matter?, Economic Roundup Spring 2005, viewed 30 Jan 2014, http://archive.treasury.gov.au/documents/1042/HTML/docshell.asp?URL=08_RMBundervaluation.asp

Goldstein, M & Lardy, N 2008, China's Exchange Rate Policy: An Overview of Some Key Issues, viewed 30 Jan 204, http://www.piie.com/publications/chapters_preview/4150/01iie4150.pdf

Goujon, M & Guerineau, S 2006, The Modification of the Chinese Exchange Rate Policy: Its rationale, extent and recent developments, China Perspectives, viewed 30 Jan 2014, http://chinaperspectives.revues.org/607

Herrmann, S 2009, Do we really know that flexible exchange rates facilitate current account adjustment? Some new empirical evidence for CEE countries, Discussion Paper Series 1: Economic Studies No 22/2009

Miller, T 2008, China's Undervalued Currency Benefits Americans, viewed 30 Jan 2014, http://www.heritage.org/research/reports/2008/05/chinas-undervalued-currency-benefits-americans

Morrison, W & Labonte, M 2010, China’s Currency: An Analysis of the Economic Issues, CRS Report for Congress, viewed 30 Jan 2014, http://fpc.state.gov/documents/organization/154184.pdf

Zhang, H n.d., Fixed Versus Flexible Exchange Rate in China, viewed 30 Jan 2014, http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.196.8367&rep=rep1&type=pdf

Tan, J 2010, Exchange Rates and the Current Account Balance: A Case Study of the Yen, viewed 30 Jan 2014, http://economics.stanford.edu/files/Tan_HThesis2010.pdf

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