The Currency of the Peopleâ€™s Republic of China and Production Fragmentation
This paper examines how an appreciation of the currency of the Peopleâ€™s Republic of China (PRC)â€”renminbiâ€”affects the countryâ€™s exports in the context of production fragmentation, using a panel data set of the PRCâ€™s trade for 1992/93â€“2008/09. It constructs two exchange rates for renminbi : one is a bilateral real exchange rate and the other is a real effective exchange rate against East Asian component suppliers. It is found that appreciation of the renminbi would somewhat offset a reduction in the volume of the PRCâ€™s exports induced by lower importing costs of components. Hence, evidence casts further doubts on the efficacy of further unilateral reform of the renminbi exchange rate regime on correcting trade imbalances.
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