China 's Exchange Rate Policy Essay

723 Words Mar 10th, 2016 3 Pages
Part 1: As per Exchange rate policy on 15th March 2015: A.] The recent changes in china’s exchange rate policy as exemplified on 15th March 2014 are:
 China made its currency Yuan a much free floating currency by loosening and widening its daily trading limit against U.S dollar. (WSJ, 2014)
 The china’s central bank and people’s bank of china set a daily trading rate called the parity rate for Yuan against the U.S.dollar, allowing the widening of the daily trading band to push from its current currency value at 1% to move freely upward or downward by 2% on a daily basis similar to the working of any other major currency (WSJ, 2014)
B.] China has brought about these recent changes in its exchange rate policy because:
a. It wanted to inculcate a leadership belief that in spite of a slow economic growth its exchange rate reforms are strong enough to move forward. (WSJ, 2014)
b. It wanted to initiate a two way flexible volatility in terms of its daily trading band. (WSJ, 2014)
c. Furthermore it wanted to be more flexible in terms of adjusting to the monetary policy as its trade surplus accounted to 2.1% of its GDP as well as the its financial conditions were stable and under control (WSJ, 2014)
d. Also it wanted to create a market based exchange rate system that would allow Yuan to move flexibly upward or downward similar to a major currency so that it could fix its creaky financial sector and thus bringing about rise in the country’s status within the international…

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