The Inflexible Yuan and Global Imbalances
This paper evaluates China's exchange rate policy and current account surplus in the context of its rapid development. Recognizing that external imbalances reflect divergent national production and expenditure growth within both China and its trading partners, it contends that yuan exchange rate undervaluation against major currencies is central to any explanation of global imbalances. This misalignment artificially assists China's output growth and limits its household consumption, thereby slowing the rise in China's living standards. Meanwhile, due to currency misalignment, China's industrialized trading partners, most notably the United States and European Union, simultaneously experience larger bilateral current account deficits with China, lower output, lower saving and higher investment than otherwise. Further significant appreciation of China's exchange rate would simultaneously reduce China's huge trade surplus and the bilateral deficits of its trading partners, thereby alleviating international trade tensions.
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Volume (Year): 8 (2008)
Issue (Month): 3 (September)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anna J. Schwartz, 2005. "Dealing with Exchange Rate Protectionism," Cato Journal, Cato Journal, Cato Institute, vol. 25(1), pages 97-106, Winter.
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- Tatom John A, 2007. "The US-China Currency Dispute: Is a Rise in the Yuan Necessary, Inevitable or Desirable?," Global Economy Journal, De Gruyter, vol. 7(3), pages 1-15, October.
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