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The Motivations behind China's Currency Policy
The original reasons why China had their currency pegged against the dollar is: that it provided stability and it allowed the country to sell low cost imports in markets where there was a large amount of consumers (i.e. The United States). Over the course of time, this helped China to be able to adapt to the changes that are taking place in the world economy. as, they quickly became one of the largest importers for: a variety of manufactured goods. However, as time went by it became clear that the country was keeping their currency artificially low. This was a part of an effort to help the nation to: build up their currency reserves (through large trade surpluses) and begin to establish some form of long-term economic development. Once this began to occur, it meant that a shift took place in this relationship, as China began to: experience consistently rising trade surpluses and deficits at the expense of their trading partners. This led to calls that China was engaging in a new form of mercantilism by: artificially keeping their currency low. These different elements are important, because they are showing how China is using this as way to: help increase their reserves and wealth. as, they...
Because of these reasons, China has become very inflexible in: their approach and how it will influence economic activity moving forward. As a result, the nation has been continuing to embrace this policy to: achieve their different objectives and deal with the various issues that have hindered economic growth. (Carbaugh, 2008, pg. 473) (Chow, 1987, pg. 286)
China's Growth in the World Market
The Chinese government implemented a major economic reform program in 1978, after reducing state control of all production assets. Government officials urged the formation of: rural enterprises / private businesses, liberalized foreign investment / trade, allocated various resources from government to private entities (i.e. privatization) and they invested in education / training for workers. Many of these supply-side factors pushed the country to meet the demands of a dynamic economy. as, the government's strategy; worked much better than they had expected.
Before 1978, the Chinese economy had seen an annual growth of 6%. However, post-1978, China began to experience average real growth of more than 9%. This was a steady line of growth, as opposed to
China's Growth in the World Market
The Chinese government implemented a major economic reform program in 1978, after reducing state control of all production assets. Government officials urged the formation of: rural enterprises / private businesses, liberalized foreign investment / trade, allocated various resources from government to private entities (i.e. privatization) and they invested in education / training for workers. Many of these supply-side factors pushed the country to meet the demands of a dynamic economy. as, the government's strategy; worked much better than they had expected.
Before 1978, the Chinese economy had seen an annual growth of 6%. However, post-1978, China began to experience average real growth of more than 9%. This was a steady line of growth, as opposed to
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Like what was state previously, the main reason for the peg to be in place was to help provide China, with consistent economic growth (by making certain that their currency will remain at a set rate). This has caused sharp divisions between the U.S. / world opinion and China, as a number of different countries believe that the current policy gives the yuan an unfair advantage on world markets. As