8/30/2023 0 Comments Chinese yen to usd![]() ![]() This change of attitude reflects a number of factors: ![]() There is a widespread view that the RMB is now significantly undervalued, with some arguing that this is a matter of global concern. More recently, however, there has been mounting external pressure on China to allow the RMB to appreciate against the dollar. During the 1997-98 Asian financial crisis, China was praised for resisting pressure to devalue the RMB, which could have triggered further destabilising depreciations of other Asian currencies. Under the peg, China was able to control previously high inflation and sustain GDP growth at an average rate of nearly 9percent. For most of this period China’s exchange rate regime attracted little criticism: indeed, it was widely seen as contributing to internal and external stability. 2 The RMB had, until July 2005, been pegged to the USdollar at a virtually unchanged rate for a decade. The value of China’s currency, the renminbi (RMB), has recently become a contentious issue. Precipitate moves could be costly both to China and to global markets. A more flexible exchange rate is in China’s medium-term interests, but the pace of adjustment and its sequencing with other reforms will need to be carefully managed. ![]() While the contribution of the RMB to external imbalances is often exaggerated, currency adjustment will be a necessary element of the adjustment process. This does not appear to have had significant adverse effects on the Chinese economy to date, but the costs of holding down the exchange rate are likely to rise in the future. The size of the imbalance in China’s external payments suggests that the RMB is significantly undervalued. The Chinese Government has made cautious initial steps toward a more flexible regime, but faces continued pressure to allow further currency movement. Instead, a more flexible exchange rate regime is argued to be necessary for internal balance by providing policy makers with a more effective monetary policy instrument. Others assert that any plausible appreciation of the RMB is unlikely to affect global current account positions significantly. Some commentators argue that significant undervaluation of the renminbi (RMB) is contributing to global external imbalances. China’s currency regime has recently become a contentious issue. ![]()
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