Essay on China’s Renminbi: “Our Currency, Your Problem”

On July 21, 2005, China revalued its decade-long quasi-fixed exchange rate of approximately 8.28 yuan per U.S. dollar by 2.1% to 8.11. Simultaneously, the People’s Bank of China announced that the daily trading band of 0.3% against the dollar would be maintained. Many analysts and economists believed that the real trade-weighted value of the renminbi was undervalued by up to 30% to 35%.

Chapter 11: Global negotiations leave groups more fortunate. A government that is purposefully maintaining inflated currency is robbing buyers of imports and creators of exports. A deflated value has an opposing effect, making imports cheaper and exports less challenging. One piece of currency across the west reduces negotiations and encourages price transparency. However, the United States as an individual country are

For the last twenty eight years, China has been quickly growing into one of the largest economies in the world. China has accomplished this feat, in part, by radically changing their policies on trade and free market interactions with other countries. During this process, China has bought approximately one hundred trillion dollars of United States debt in the form of Treasury bills, notes, bonds, and Inflation Protected Securities (Amadeo). This debt has given China leverage against the United States which has enabled China to keep the value of the United States dollar high, while keeping the value of the Chinese yuan low. As the inflation of the dollar continues to negatively affect the

Exchange rates play a pivotal role in the relationships between individual economies and the global economy. Almost all financial flows are processed through the exchange rate, as a result the movements and fluctuations of the exchange have a significant impact on international competitiveness, trade flows, investment decisions and many other factors within the economy. Due to the increasing globalisation of the world economy, trade and financial flows are becoming more accessible

Since July 21, 2005, China has adopted a managed floating rate regime based on market supply and demand with reference to a basket of undisclosed currency. The daily trading price of the U.S. dollar against RMB in the foreign exchange market will be allowed to float within a band of +/->0.3% around the central parity published by People’s Bank of China. The signal was initially interpreted by the international market as an indication that China would embark on a gradual shift toward increased flexibility which eventually adopt a floating exchange rate regime where the RMB will appreciate much against US dollar. However, they soon

Thus the rationale behind changing the nominal exchange rate under a fixed or pegged exchange rate system is easy to follow provided that the set rate is found to be far away from the optimal or equilibrium rate. However, why does the central bank need to manage exchange rates which are determined by market forces in case of independent floating? This remains a contentious issue. Essentially, the central bank is believed to determine the appropriate level (or path) of the nominal exchange rate and then intervene in foreign exchange markets to bring the actual exchange rate close to the appropriate level. In practical sense, the appropriate level of the exchange rate may represent the rate which, when translated into a real exchange rate, is consistent with the long-run equilibrium real exchange rate. Many economists of neoclassical persuasion believe that the market determined exchange rates broadly represent the long-run equilibrium exchange rates and there is no need for managing exchange rates or intervention in foreign exchange markets.

In 2013, America imported over 440,433.5 million dollars’ worth of goods from China but only exported 122,016.3 million dollars. (U.S. Census Bureau Foreign Trade) If America and other countries trade so frequently with China and rely so heavily on Chinese manufacturing, production, and innovation, then the aspect of currency manipulation within China and its potential negative effects on world trade is a very significant topic of importance and reason to research the subject. Our

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 renminbi currency has experienced a fixed exchange rate. The renminbi is seen as undervalued because the value of its currency has been scrutinized to be artificially low, which gives Chinese companies an unfair advantage over floating exchange rate countries such as the US. China has purchased more than $2.2 trillion in foreign exchange reserves in order to maintain an undervalued currency (Scott 2010). China buying US reserves increases the demand for dollars and increases the value of the dollar. Primarily, this makes Chinese goods cheaper in the US and US goods more expensive in China. Keeping a weak currency helps China to boost international exports because other countries purchase China’s goods at a relatively lower price. This helps to maintain growth in China’s economy and provide more manufacturing jobs, a staple to their economy.

This paper indicates the issue of full convertibility for the Chinese currency, Renminbi(RMB), and its impact on the economy of China. It does not only point out the sequencing of Renminbi’s full convertibility, expounding the detailed concepts procedure of currency convertibility (current account convertibility and capital/financial account convertibility and full convertibility) but also focus on the necessity and challenges will bring to China based on this subject. A review of historical process toward the full convertibility of Renminbi will be provided. There are still various restrictions on capital account convertibility in China. It still takes some

Finally given the slowing economy in Asia the International Monetary Fund (IMF) has reclassified the yuan. Previously the IMF considered it to be “substantially undervalued” compared to other currencies. The IMF has softened its tone toward the Chinese yuan and it is now considered “moderately undervalued”. This new designation makes it harder for the United States government to make a case against and therefore policies to target the imports based on the Chinese yuan. (Davis, 2012)

Measuring the magnitude of exchange rate pass-through for Chinese exports is all the more relevant because China’s trade imbalance with richer trading partners, notably the United States, is often perceived as exacerbated by exchange rate manipulations. Many indeed argue that an appreciation of the renminbi would help rebalance China’s trade. While the RMB was pegged to the U.S. dollar until July 2005, Tang and Zhang (2014) noted that there were significant fluctuations in real terms from an appreciation of 9% from 2000 to 2001 to a depreciation of 17% from early 2005. The extent of its trade’s response to a change in the exchange rate however depends on the magnitude of the ERPT and on the price elasticity of Chinese exports and imports.

In the 11 years, the international economic situation has undergone great changes; pegging the RMB exchange rate formation mechanism type has become increasingly unsuited to China 's economic reform and development requirements. It is demonstrated by the defects are:

In recent years, China’s balance of payments always keeps “double favorable balance”. In 2005, China’s national economy developed quickly and stably. The exchange rat of RMB became more flexible. The current account surplus increased obviously and the capital account surplus decreased. The foreign exchange reserve still increased quickly. In 2005, Chinese government did some fiscal policy and monetary policy. Such as decreased government expense, raise the tax rate, used managed floating system, improve the foreign exchange management, enlarged the foreign exchange market. We can conclude that china’s BOP will still keep “double favorable balance” and keep

Abstract: Recently, the appreciation of RMB has been a hot topic and caused a heated debate. For China, it not only involves the changes in the RMB revaluation, but also affects China 's external trade. Through reviewing the RMB