Central Bank Government Of China

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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…show more content…
Asian Financial Crisis The Asian Financial Crisis, that began in the middle of 1997, was a surprise to many. It all started when Thailand had a financial crisis which ended up spreading to its neighboring Southeast Asian countries. This mass spread was largely due to the intense devaluation of currencies in Asia . The crisis caused mass capital outflows and investor flight because investors lost confidence in the financial systems in many of those countries. Although it started out being contained in Thailand, it spread to other East Asian countries and ended up impacting Malaysia, Indonesia, the Philippines, South Korea, Hong Kong, and China. Consequently, the lack of investor confidence caused the international stock markets suffered from this crisis, which also impacted other countries that reside outside of the Asian continent. During the crisis, the greatest issues that China faced were a decrease in income level, many of its companies went under, and there was tremendous pressure on the yuan to devalue (Yongding, 164). The Chinese government at this time had concluded that being pegged to the US dollar at a market exchange rate that equaled about 1 USD= 8.28RMB was the best chance they had to keep the yuan stable (Frankel and Shang Jin, 595). The stability that the US dollar was able to provide the Chinese yuan helped the issues it was facing not become even bigger ones. If the Chinese yuan had devalued more than it
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