Pegging in CHina
CHINA- Pegging and its main issue
Before we understand the role that pegging of RMB plays in the upliftment of the Chinese economy we need to understand the pegging. Pegging is an idea of fixing the exchange rate of currency with the value of another’s country currency or to a basket of value, generally a small economy peg its currency with the currency of big economy so as to stabilize the value of the currency.
The main issue to deal with are
1) The impact of pegging on china and other economies
2) Why China never wanted to De peg its currency?
3) The basis on which De-pegging should be done?
4) Other competitive advantage to the China?
5) Problems faced by USA and other big economies
6) How RMB is going to react after De-pegging?
As we have understood the meaning of the word Pegging now we should focus on the first main issue, China pegged its currency with USA for nearly 15 years, the year of growth for the china because as it pegged its currency with USA, the value of RMB remains the same but the value of US dollar increase there by making the US dollar expensive in the market as compare to the RMB (the Chinese currency) because the Chinese banks has already pegged their currency that means they never allowed their currency to move according to the market, rather fixed the value, especially when the US dollar shift according to the market forces, its product becomes expensive in the market but the product of Chinese economy remains cheaper as compare to US and European currency there by giving an advantage to the Chinese economy, the advantage which they took for 15 years during which they becomes the contender for world’s no. 1 economy. We can analyze the impact from the GDP growth rate of china during this period which is around 9% and the exports to the US was around 202 billion in 2005. But it was in 2005 that Chinese bank decided to de peg its currency even though pressure was mounted from 2002. The exports from China to USA is more as
Before we understand the role that pegging of RMB plays in the upliftment of the Chinese economy we need to understand the pegging. Pegging is an idea of fixing the exchange rate of currency with the value of another’s country currency or to a basket of value, generally a small economy peg its currency with the currency of big economy so as to stabilize the value of the currency.
The main issue to deal with are
1) The impact of pegging on china and other economies
2) Why China never wanted to De peg its currency?
3) The basis on which De-pegging should be done?
4) Other competitive advantage to the China?
5) Problems faced by USA and other big economies
6) How RMB is going to react after De-pegging?
As we have understood the meaning of the word Pegging now we should focus on the first main issue, China pegged its currency with USA for nearly 15 years, the year of growth for the china because as it pegged its currency with USA, the value of RMB remains the same but the value of US dollar increase there by making the US dollar expensive in the market as compare to the RMB (the Chinese currency) because the Chinese banks has already pegged their currency that means they never allowed their currency to move according to the market, rather fixed the value, especially when the US dollar shift according to the market forces, its product becomes expensive in the market but the product of Chinese economy remains cheaper as compare to US and European currency there by giving an advantage to the Chinese economy, the advantage which they took for 15 years during which they becomes the contender for world’s no. 1 economy. We can analyze the impact from the GDP growth rate of china during this period which is around 9% and the exports to the US was around 202 billion in 2005. But it was in 2005 that Chinese bank decided to de peg its currency even though pressure was mounted from 2002. The exports from China to USA is more as
Bibliography: Bayraktar, N., n.d. Currency misalignment: the China case. [Online] Available at: http://www.aabri.com/manuscripts/121224.pdf [Accessed 30 05 2013]. Moran, A., 2010. China ready to end pegging currency to U.S. Dollar. [Online] Available at: http://digitaljournal.com/article/288688 [Accessed 29 5 2013]. Navarro, P., 2012. China’s Currency Manipulation: A Policy Debate. [Online] Available at: http://www.worldaffairsjournal.org/article/china%E2%80%99s-currency-manipulation-policy-debate [Accessed 1 6 2012].