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China's exchange rate impasse and the weak U.S. dollar

  • McKinnon, Ronald
  • Schnabl, Gunther

In assessing Alexander Swoboda's great influence on economics, two themes stand out: the determinants of global inflation, particularly in the 1970s, and the choice of an exchange rate regime consistent with domestic monetary and fiscal policies. Although seemingly narrowly focused on China, our contribution to Alexander's fete straddles both themes. Since 2004, China has been backed into a situation where the renminbi is expected to go ever higher against the dollar, and this one-way bet has led to a loss of domestic monetary control. Combined with a more general flight from the U.S. dollar, the resulting monetary explosion in China contributes to the worldwide increase in primary commodity prices - with excess liquidity reminiscent of the global inflation generated by the weak dollar in the 1970s.

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Paper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 73.

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Date of creation: 2008
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Handle: RePEc:zbw:leiwps:73
Contact details of provider: Postal: Marschnerstraße 31, 04109 Leipzig
Web page: http://www.wifa.uni-leipzig.de/en/dekanat.html

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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  2. Gunther Schnabl & Andreas Hoffmann, 2008. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View," The World Economy, Wiley Blackwell, vol. 31(9), pages 1226-1252, 09.
  3. Ronald Ian McKinnon, 2007. "The US current account deficits and the dollar standard’s sustainability: A monetary approach," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 8(4), pages 12-23, 01.
  4. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, vol. 90(2), pages 65-70, May.
  5. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia. Mitigating Conflicted Virtue," International Finance 0406007, EconWPA, revised 07 Jul 2004.
  6. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
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