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The paper discusses how although China's current monetary policy has created significant distortions in the global marketplace, to end controls on the Yuan would have devastating consequences domestically. The paper explains why inflation would run rampant and savings would be eroded and why China's economic base - manufacturing - would be eroded, thus jeopardizing the country's move towards modernization. The paper clearly shows why China should not allow the Yuan to float freely on the open markets at this point in time.
From the Paper:"In 2005, China ended a fixed peg of the Yuan to the US dollar. They replaced it with a range-based float whereby the Yuan floats within a 0.5% band, set daily by the Chinese central bank (Xinhua, 2009). Overall, the Chinese government has allowed for some appreciation in the Yuan, 13% in 2007 for example (Business Week, 2008). This relationship is based on the Chinese government's desire to spur growth in its economy. Without the peg or the range, it is believed that the Yuan would appreciate rapidly, which would increase the price of Chinese exports on foreign markets. This in turn, would reduce demand for Chinese goods. The government of China, motivated to pull as many of its billion-plus population into the modern era, sees that there is still considerable room for growth. Therefore, they continue to hold the value of the Yuan down, lest the strong economic growth the country has been enjoying come to a halt before the nation is fully modernized."
Sample of Sources Used:
- No author. (2009) China's Yuan Weakens for a Sixth Day Against the US Dollar. Xinhua. Retrieved http://news.xinhuanet.com/english/2009-03/03/content_10933337.htm
- Kaneene, Tibita. (2009). Why China's Currency Manipulation Doesn't Matter. Foreign Policy. Retrieved March 3, 2009 from http://www.foreignpolicy.com/story/cms.php?story_id=4692
- Kedrosky, Paul. (2009). Watch Out World: Americans are Saving Again. Globe and Mail. Retrieved March 3, 2009 from http://www.theglobeandmail.com/servlet/story/RTGAM.20090116.wcokedrosky16/BNStory/crashandrecovery/home
- Lim, Louisa. (2008). Economic Slowdown hits Chinese Industry Hard. NPR. Retrieved March 3, 2009 from http://www.npr.org/templates/story/story.php?storyId=95727213
- No author. (2008). Why China is Rooting for a US Slowdown. Business Week. Retrieved March 3, 2009 from http://articles.moneycentral.msn.com/Investing/Extra/WhyChinaIsRootingForAUSSlowdown.aspx
Cite this Analytical Essay:
China's Current Monetary Policy (2010, December 24) Retrieved February 21, 2020, from https://www.academon.com/analytical-essay/china-current-monetary-policy-146290/
"China's Current Monetary Policy" 24 December 2010. Web. 21 February. 2020. <https://www.academon.com/analytical-essay/china-current-monetary-policy-146290/>