An Analysis of the U.S. Dollar Depreciation: Whether It Is Beneficial to Chinese Economy

1. What are the implications of China’s exchange rate policy on doing business with and “against” China?

China’s expansion in trade is accompanied by the increase of FDI and growing trade by foreign invested enterprises. (Fung, 2002) Contribution of FDI has increased dramatically since the early 1980s, especially in the 1990s. During 1980 and 1985, trade by FDI constituted less than 0.6% of total export and 2.1% of total import. The shares went up to 7.3% and 12.8% respectively in the second half of 1980s. In

China, the largest growing market in the world, currently has a policy regarding monetary regulation that allows the Yuan to “float”. This has seen the Yuan appreciate by approximately 24% over the past few years. Today, the exchange rate between the Chinese Yuan and the American Dollar is approximately 6.3 Yuan to 1 Dollar. Some argue that China should revalue the Yuan again the dollar, establishing a more fixed exchange rate. Others believe that current should allow

The purpose for this paper is to explain what is meant in terms of a world reserve currency in the financial world giving details of how the U.S. dollar became the prominent title owner. The paper will proceed to give a detailed understanding of the interworking of the world reserve currency with international trade and its importance to the U.S. economy. Also, the paper will mention the looming threats to dethrone the “all mighty dollar” of its world reserve currency status with far reaching ramifications to the American economy if that were to take place. In closing there will be a short summary of the important points discussed throughout the paper.

China has pegged its currency against the U.S. dollar. If demand for dollars decreases (THERE IS PRESSURE FOR THE U.S. DOLLAR TO DEPRECIATE. IN THIS SETTING, CHINA HAS TO PURCHASE

The People’s Bank of China expects to “expand the cross-border use of the Chinese currency” this year (PBOC). Regarding monetary policy, the PBOC seeks to maintain a steady level of credit growth, improve the capital market, and develop foreign policy for international financial regulation (PBOC).

The Murdell-Flemming Trilemma or “Unholy Trinity” states that a government can only generate policy that satisfies two of three general desires; these desires are exchange rate stability, capital mobility, and domestic monetary autonomy (Cohen, 2010). Concerning the China, the general international monetary choices should be capital mobility and domestic monetary autonomy. In an era where multinational corporations are increasingly looking to cross-regional mergers and acquisitions to create value, it is more important than ever for China to retain capital mobility and domestic monetary autonomy (Cross-Regional, 2015). Through an examination of multinational corporations and domestic monetary policy choices, the need for capital mobility and domestic monetary autonomy become clear. This need is proven through the effects these policy choices have on domestic monetary value and the subsequent consequences these effects have on cross-regional mergers and acquisitions.

China’s equity market has been at the epicentre of the weakness in risky asset prices. The irony is that underlying Chinese economic activity has probably improved since last August’s devaluation. The focus of financial markets has, however, been firmly on the torrid deflationary plight of the industrial sector. Despite official denials, devaluation is viewed as a potential policy remedy. Weak currencies are usually bullish for equity markets. Why is this not currently the case for China? Domestic financial conditions have tightened due to the reduction in foreign exchange reserves as the People’s Bank of China (PBoC) attempts to stem capital flight. It appears, therefore, that foreign exchange intervention is not being sterilised by the central bank via money market operations. This has resulted in tighter money market rates and consequently bad for equities. Meanwhile, tighter domestic financial conditions have not yet

Most commentators believe that the decision by the People’s Bank of China (PBoC) to allow the yuan to weaken reflects rising concern about the state of the real economy. Economic growth has clearly decelerated, but rebalancing the dynamics driving real GDP was never going to be a predictable process, particularly given that the government has tried to prevent the destruction of capital that is invariably required during such transformations. China has never totally turned her back on fixed investment being a significant source of economic growth. This stance has introduced excess capacity into the economy, funded by a multitude of debt instruments since 2008. Higher investment spending was seen as the best way to shore up the economy during the global financial crisis. Utilisation of newly built capacity was expected to rise once demand conditions returned to normal. The problem is that global aggregate demand growth never returned to pre-crisis levels, consequently rendering many projects economically and financially unviable. This did

China’s economy is growing ever larger, but is that enough to get the Chinese Renminbi (more commonly known as Yuan) to be accepted as a global market currency? This paper will look into the liberalization, but with Chinese characteristics, of five determining factors in becoming a country whose currency is a global reserve currency. These factors are as follows: economic size, macroeconomic policies, flexible exchange rates, financial market development, and finally having

Wal-Mart’s business strategy relies on low production costs which it can pass on to its customers.   If Wal-Mart were a country then it would be China’s eighth largest trading partner ahead of Russia, Australia, and Canada.   Wal-Mart’s non-Chinese owned suppliers operating in China number nearly 5,000 and all of them benefit from a low valued yuan compared to the dollar.   The 176 million worldwide customers of Wal-Mart also benefit from the low valued yuan.   With nearly 70% of Wal-Mart’s products coming from China a sharp increase in the value of the yuan against the dollar can be devastating

A part of finances from purchases of foreign assets by selling China’s bonds are supposed to be clean so the money supply does not end up expanded. From this policy, foreign reserves assets of the PBOC have quickly grown and global market conditions caused China’s monetary policy to be delicate. (See the graph below).

The topic of Chinas fixed exchange rate has remained as one of the fiercest subject in global macroeconomics for an extensive period of time. A fixed exchange rate or pegged exchange rate is where a currency value is fixed against the value of another currency, in the example of China, the Yuan or Renminbi it is currently pegged to the US dollar, it has been fixed to the US since 1994 however within the past decade it has been allowed to appreciate a little at a time. But in times of economical difficulties such as 2008 ‘China halted the Yuan’s appreciation as worldwide demand for Chinese products slumped due to the global financial crisis’ (Picardo, 2009), this shows the given Chinas recent economic difficulties government may keep the

The appreciation of the RMB issue has attracted attention of various circles at home and abroad. By analyzing the current RMB exchange rate appreciation on China’s economic impact at all levels, I will mainly from the industrial structure, export structure, and enterprises to change their operational mechanism, to ease trade tensions and the effectiveness of monetary policy five-pronged approach to analysis; and my final conclusion: RMB exchange-rate appreciation generated by the final result is more positive than negative, impact is positive. In the current context of the appreciation has become a fact, china should actively take the appropriate follow-up measures to stabilize and optimize the economic environment, to minimize possible

Security investment to external is continual increasing. There are two main reasons. First, many Chinese bank increase the foreign exchange capital because of the innovation or come into the foreign market. Second, may be the international financial market rate increase and local financial finite market, so they choose increase the foreign investment.