The Discussion on Chinese Government Exchange Rate Policy of the Yuan and Its Impacts to the Us Economy and the Hedging Solution
The Financial Engineering Subject Assignment Lecturer: Prof. Dr. Markus Freiburghaus
Vo Tran Dinh Hieu – EMFB 5 Topic B: Hedging Currency Risk
The discussion on Chinese government exchange rate policy of the Yuan and its impacts to the US economy and the hedging solution
What have been the exchange rate policies of the Yuan (CNY) or Reminbin (RMB) of the Chinese Government? Let’s start with the reviewing of the exchange rates separately throughout the history. There are not a lot of readers may know that the exchange rate of USD/CNY were approximately close to one time at the beginning of 1980s. In 1983, two years before I were born, one US Dollar (USD) was traded at 1.43x of the Chinese Yuan or Reminbin (CNY). Prior 1995, it was unnoticeable period for the economic performance of China, the Chinese Yuan had been depreciated for more than 5 times of its initial value in ten years time 1985 – 1995 to the US Dollar. The exchange rate of USD to CNY had climbed sky-high from 1.5 times in 1984 to more than 8.5 times in 1995. The most memorable event was the 50% devaluation as end 1993; the local currency lost half of its value overnight. And what even more exiting was happened after, the Chinese government has pegged the Yuan at around 8.2 Yuan to one US Dollar for the next decade. The motive behind has been obviously clear to the world, however the questions are how did the Chinese value the Yuan and is it undervalued consistently, very arguable. The following analysis which bases on the general economy statistics would help us to understand the situation better on the business administrative point of view. The China’s real GDP growth rates had kept slowing down rapidly until the beginning of 2000. Prior to that the Chinese government had done a lot of works to support the economy growth, including the SOEs sector reform, the agricultural sector reform, modernization of the industrial sector and especially the Yuan dramatic depreciation to support the country
Vo Tran Dinh Hieu – EMFB 5 Topic B: Hedging Currency Risk
The discussion on Chinese government exchange rate policy of the Yuan and its impacts to the US economy and the hedging solution
What have been the exchange rate policies of the Yuan (CNY) or Reminbin (RMB) of the Chinese Government? Let’s start with the reviewing of the exchange rates separately throughout the history. There are not a lot of readers may know that the exchange rate of USD/CNY were approximately close to one time at the beginning of 1980s. In 1983, two years before I were born, one US Dollar (USD) was traded at 1.43x of the Chinese Yuan or Reminbin (CNY). Prior 1995, it was unnoticeable period for the economic performance of China, the Chinese Yuan had been depreciated for more than 5 times of its initial value in ten years time 1985 – 1995 to the US Dollar. The exchange rate of USD to CNY had climbed sky-high from 1.5 times in 1984 to more than 8.5 times in 1995. The most memorable event was the 50% devaluation as end 1993; the local currency lost half of its value overnight. And what even more exiting was happened after, the Chinese government has pegged the Yuan at around 8.2 Yuan to one US Dollar for the next decade. The motive behind has been obviously clear to the world, however the questions are how did the Chinese value the Yuan and is it undervalued consistently, very arguable. The following analysis which bases on the general economy statistics would help us to understand the situation better on the business administrative point of view. The China’s real GDP growth rates had kept slowing down rapidly until the beginning of 2000. Prior to that the Chinese government had done a lot of works to support the economy growth, including the SOEs sector reform, the agricultural sector reform, modernization of the industrial sector and especially the Yuan dramatic depreciation to support the country
References: are used moderately from various online resources such as: news providers (Bloomberg, Reuters, WallStreet Journal...), statistics bureaus and official website of China and US governments. The article is written on the discussing manor and does not specify detail references as well as disclaimers. 3