Central Bank Government Of China

1963 WordsMay 29, 20168 Pages
In 2005, Zhou Xiaochuan, the Central Bank Government of China who has been in power for the past 13 years, announced that the Renminbi would switch exchange rate regimes and would begin to follow a more flexible regime that was tied to a basket of different currencies. Prior to this new change, the Chinese yuan was strictly pegged to the US dollar, which helped them thrive economically in the global market. Less than a decade before the exchange rate regime was changed, the Asian financial crisis occurred and many East Asian countries were impacted. Compared to its neighboring countries, China was not impacted as badly as other countries, therefore it continued to stay afloat during this difficult period of time and continued after the majority of the East Asian countries became more economically stable. Although the new reform of the Chinese yuan did not come to a surprise to other governments around the world, the dependency on the US dollar has always been a heavy one. In 2005, China’s de jure exchange policy changed to a basket of currencies. Despite this change the yuan continued to rely more on the US dollar because it allowed China to maintain the best comparative advantage in the global market when it comes to exporting goods. In this paper will how the peg exchange rate regime was beneficial to China during the Asian financial crisis, why China changed its exchange rate regime in 2005, and understand whether or not the switch in exchange rate regime has been

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