Abstract
China has intervened in the currency markets to control the renminbi’s exchange rate. Previously, this intervention involved holding the renminbi below its true value, which boosted the tradable goods sector (both exporters and firms competing against imports) at the expense of consumers of imports (including households). This intervention distorted the economy by favoring manufacturing over services and firms over households. In addition, the intervention, in which the People’s Bank of China (PBoC) sold renminbi and bought dollars, led to the accumulation of huge foreign exchange reserves. The growth in reserves complicated monetary policy and led to policies that created further distortions. Finally, the exchange rate policy was unpopular with some of China’s trade partners, particularly the USA, which complicated international relations.
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References
Morgan Stanley. (2015, February 24). Asia insight: How vulnerable is Asian debt to a strong USD? Morgan Stanley Research.
Wolf, M. (2010). Fixing Global Finance. Johns Hopkins University Press.
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Armstrong-Taylor, P. (2016). Exchange Rate Liberalization. In: Debt and Distortion. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-53401-9_13
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DOI: https://doi.org/10.1057/978-1-137-53401-9_13
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Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-137-53400-2
Online ISBN: 978-1-137-53401-9
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