China’s Currency Policy
Introduction
Though out this semester I have wondered and motivated to find out how China’s monetary policy, undervalued Yuan, affected its economy and others and why China prefers to keep their currency as undervalued. In addition, I researched further to discover how China successfully accumulated the world’s largest foreign exchange reserves with undervalued Yuan. Historically China has been associated with currency manipulation and artificial management of its foreign exchange rates to improve its current account positions. As long as the Chinese Yuan was, and is, undervalued, its export economy will remain not only intact but highly beneficial in comparison to that of its trading partners. While no-one would argue that China’s foreign exchange currency regime is completely at fault for the U.S.’ trade imbalance with that country, for example, no-one would argue that the perennially undervalued Yuan certainly improves its position vis-à-vis trade, bilateral trade agreements, and foreign investment. Additionally, its monetary policies have, for the last 10 years or so, been tailored to make itself for attractive to foreign investors who have been flocking to the market in droves. This investment activity has not been solely for the purpose of facilitating contract manufacturing intended to take advantage of China’s comparative advantage in trade but also to establish a presence in the market itself.
China’s internal market is so potentially huge that as its economy has continued to expand at unheard of rates over the last decade, it, along with India, is viewed as one the last truly growth markets that can sustain double digit growth well into the next decade. But foreign investors have continually found thems ...