The International Monetary Fund ( Imf )

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Introduction In the statement of the 2015 Article IV Consultation Mission to China, the International Monetary Fund (IMF) concluded that the Chinese economy was transitioning to a safer and higher-quality growth. In particular, the IMF highlighted that China had made good progress in recent years in reducing its large current account surpluses and its huge accumulation of foreign exchange reserves. Although undervaluation of the yuan was a major factor causing the large imbalances in the past, the appreciation of the yuan over the past few years had brought the yuan-USD exchange rate to a level that was no longer undervalued. Exchange rate, the price of a nation’s currency in terms of another currency, indicates the value of a currency: a higher exchange rate is associated with a relatively lower value of its corresponding currency. Since Chinese goods are usually valued in yuan, the only currency that is valuable for Chinese is yuan. That is, a Chinese is only interested in selling and purchasing goods in yuan. Foreign consumers, such as Americans, have to use yuan rather than dollars to purchase goods from Chinese sellers. Specifically, an American must exchange his dollars into yuan at first and then uses yuan to purchase Chinese goods. In other words, the yuan-USD exchange rate works as a tool to measure the price of the dollar in yuan. Facing the threat of trade sanctions by the U.S. Congress, China announced that it would replace its decade-old currency peg with a
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