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treasury and risk management
Finance & Accounting
Pages 4 (1004 words)
Treasury and Risk Management Table of Contents China Trying to Hold Down the Value of Yuan 3 Reason for Holding the Value of Yuan 3 Evidence Suggesting Weak Currency Policy of China 4 Relationship between Yuan Appreciation and Dollar Depreciation 4 Effect of Undervalued Yuan on China’s Economy 5 References 7 China Trying to Hold Down the Value of Yuan Reason for Holding the Value of Yuan China is pursuing a policy of holding the value of Yuan thereby not increasing the value of its currency in order to enhance growth, especially in its key exporting industries.
Therefore, China is pursuing a weak currency policy in order to boost demand for Chinese exports. The large current account surplus in China is the indication that China’s currency is undervalued (Pettinger, 2011, p.1). The reason behind holding the value of Yuan is to compensate for its economic weakness. Its weak currency policy makes Chinese goods cheap compared with those of global competitors in Europe and Japan for instance. Since 1996, China has maintained a same fixed exchange rate resulting in an enormous increase in foreign exchange reserves. This enormous increase will be fuelled by Yuan that is estimated to be undervalued against the dollar. The benefit which it is getting by holding the value of Yuan is that it is selling more goods in foreign countries i.e. trade surplus (Cohen, p.1). Another benefit is that its capital market is becoming attractive to investors. If the successful internationalization of the Yuan will be possible then it will also be the international currency (Cohen, 2011, p.1). ...
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