The paper “ Evaluation of Chinese Yuan” is a right example of a finance & accounting coursework. Over the last ten years, Yuan (CNY), the Chinese currency has experienced a high inflation rate, and the compounded annual inflation rate is about 22 percent compared to the U. S compounded annual inflation rate of about 3%, which has led Chinese policymakers to continuously come up with policies for tackling the decade-high inflation period to no avail. The current round of inflation began in 1994 and was associated with the rise in the prices of food products.
Control of inflation and stabilization of market prices have become China's highest priorities. Since 1994, the Yuan has been “ pegged” to the U. S. dollar initially with a value of more than 8.6 Yuan for a dollar (Tatom 2007). The stabilized value was 8.27 to 8.28 for one dollar between 1998 to July 2005; there was an utmost day-by-day rise and fall to around a mean value of 0.3%. The currency value of any country is dependent on productivity, economic growth, foreign investment, foreign exchange surplus, interest rate, and political stability.
A currency normally appreciates when there is economic growth, increased productivity and foreign direct investment inflow, increase in exports as well as the building of reserves in the Central Bank (Madura 2011). Almost all of these factors have been helpful in China for the last ten years. When China partly floated the Chinese Yuan between 2005 and 2008, there was an appreciation from 8.276Yuan/USD to 6.827Yuan/USD. United States 2000 2005 2007 2008 GDP (Current US $ 9,764.80 12,376.10 13,751.40 14,204.32 GDP growth (annual %) 3.7 3.1 2 1.1 China 2000 2005 2007 2008 GDP (Current US $ 1,198.48 2,235.91 3,382.27 4326.19 GDP growth (annual %) 8.4 10.4 13 9 Source: World Bank, World Development Indicators 2009The table above shows that China's Gross Domestic Product increased to USD 4.3 trillion in 2008 from USD 1.2 trillion in 2000, this was almost 300% growth.
At the same time, the US Gross Domestic Product increased to USD 4.3 trillion in 2008 from USD 1.2 trillion in 2000, which was a 45% increase. The trade tensions, political pressure, and market pressures instigated the alterations in the Chinese currency policy.
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