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The role of the chinese dollar peg for macroeconomic stability in China and the world economy

Author

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  • Gunther Schnabl

    (Institute for Economic Policy, University of Leipzig)

Abstract

During the 1997/98 Asian crisis and the 2007-2010 world financial and economic crisis, China has proved to be a stabilizer for East Asia and the world. The paper stresses the crucial role of the dollar peg for macroeconomic stability in China. The paper explores the current role of China's nominal exchange rate stabilization as stabilizing factor for China, East Asia and the world economy. Distortions originating in real exchange rate stabilization are identified and are argued to be a risk for global growth perspectives. To prevent further economic and financial turmoil the paper recommends policy coordination between China and the US. The exit from unconventional low interest rate policies in the US combined with the end of real (but not nominal) exchange rate stabilization in China is seen as necessary to stabilize longterm growth in China, East Asia and the US.

Suggested Citation

  • Gunther Schnabl, 2011. "The role of the chinese dollar peg for macroeconomic stability in China and the world economy," Global Financial Markets Working Paper Series 13-2010, Friedrich-Schiller-University Jena.
    • Handle: RePEc:hlj:hljwrp:13-2010
    as

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    File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_hlj13-2010.pdf
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    References listed on IDEAS

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    7. Ronald McKinnon & Gunther Schnabl, 2009. "The Case for Stabilizing China's Exchange Rate: Setting the Stage for Fiscal Expansion," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(1), pages 1-32, January.
    8. Rishi Goyal & Ronald McKinnon, 2003. "Japan's Negative Risk Premium in Interest Rates: The Liquidity Trap and the Fall in Bank Lending," The World Economy, Wiley Blackwell, vol. 26(3), pages 339-363, March.
    9. William R. Cline & John Williamson, 2009. "2009 Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB09-10, Peterson Institute for International Economics.
    10. Schnabl, Gunther & Freitag, Stephan, 2010. "Reverse causality in global current accounts," Working Paper Series 1208, European Central Bank.
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    Cited by:

    1. Gunther Schnabl & Kristina Spantig, 2016. "(De)Stabilizing Exchange Rate Strategies In East Asian Monetary And Economic Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-24, June.
    2. Kristina Spantig, 2012. "International monetary policy spillovers in an asymmetric world monetary system - The United States and China," Global Financial Markets Working Paper Series 2012-33, Friedrich-Schiller-University Jena.
    3. Ronald McKinnon & Gunther Schnabl, 2012. "China and Its Dollar Exchange Rate: A Worldwide Stabilising Influence?," The World Economy, Wiley Blackwell, vol. 35(6), pages 667-693, June.
    4. Gunther Schnabl & Stephan Freitag, 2012. "Determinants of Global and Intra-European Imbalances," Global Financial Markets Working Paper Series 25-2011, Friedrich-Schiller-University Jena.
    5. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
    6. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.
    7. Meixing Dai, 2013. "In search of an optimal strategy for yuan’s real revaluation," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 11(1), pages 29-46, February.
    8. Ronald Ian McKinnon & Gunther Schnabl, 2014. "China's Exchange Rate and Financial Repression: The Conflicted Emergence of the Renminbi as an International Currency," CESifo Working Paper Series 4649, CESifo.
    9. Jörg Asmussen & Gunther Schnabl, 2011. "Transformation of the international monetary system: Should the period of flexible exchange rates be ended?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(07), pages 03-09, April.
    10. Gunther Schnabl & Stephan Freitag, 2012. "Reverse Causality in Global and Intra-European Imbalances," Review of International Economics, Wiley Blackwell, vol. 20(4), pages 674-690, September.
    11. Juha Tervala, 2019. "U.S. monetary policy and China's exchange rate policy during the great recession," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 113-130, January.
    12. Kristina Spantig, 2015. "International monetary policy spillovers—can the RMB and the euro challenge the hegemony of the US dollar?," Asia Europe Journal, Springer, vol. 13(4), pages 459-478, December.

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    More about this item

    Keywords

    China; dollar peg; structural distortions; international policy coordination; global imbalances;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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