Revaluation of the Chinese Currency and Its Impacts on China – Yongnian Zheng, Jingtao Yi and Minjia Chen

From China Policy Institute website:

China’s currency, the RMB, was pegged to the U.S. dollar at a rate of around 8.28 RMB to 1 U.S. dollar for 11 years from 1994, when the official rate of RMB was depreciated to the prevailing market rate and China started to adopt a unified exchange rate. For many years, the issues surrounding China’s fixed exchange rate have been some of the hottest topics in international macroeconomics. Since 2001, much of the interest has been provoked by waves of speculation that China would let the RMB appreciate against the U.S. dollar because of its surprising strength and astonishing external achievements, and because of a decline in the U.S. dollar. In recent years, the RMB exchange rate has attracted considerable global attention due to China’s consistently large trade surpluses and its rapid accumulation of foreign exchange reserves. The U.S., Japan, and other G7 nations put increasing pressure on China to revalue the RMB. Since China was one of the largest trading partners of the U.S., and among the top trading partners of Japan and many Asian and European countries, any adjustment to the currency’s trading value was likely to have significant implications for global trade flows, as well as for China’s own economic growth and social stability. The phenomenon provoked a vigorous global debate over whether the RMB was undervalued. [Full Text]

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