Essay on Currency analysis of US dollar and RMB

2926 Words Nov 29th, 2013 12 Pages
Introduction
History of CNY/USD Exchange Rate
Period to 1994: Prior to 1994, China maintained a dual exchange rate system. This consisted of an official fixed exchange rate system, which was used by the government, and a relatively market-based exchange rate system that was used by importers and exporters in “swap markets”. The two exchange rates differed significantly. For example, the official exchange rate with the dollar in 1993 was 5.77 Yuan versus 8.70 Yuan in the swap markets. The foreign exchange was highly restricted in order to limit imports, resulting in a large black market for foreign exchange.
From 1994 to 2005: In 1994, the Chinese government unified the two exchange rate systems at an initial rate of 8.70 Yuan to
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A 0.116% move is not exactly a world-changer, but it does reverse the trend in the exchange rate.
The meaning of the move is lost on no one. This is not a large move, and it is not going to dramatically alter any trade flows or business. Moreover, the impact of this move is likely
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being magnified by the fact that the currency markets are nervous, risk-averse and news-starved right now. In such a market, any turbulence can get blown out of proportion quite quickly.
There is another meaning, though, and it's more significant. This moves reemphasizes that China will not be jawboned or pushed around by the U.S. when it comes to matters of economic policy. Perhaps more so than any other major economic power today, China is hypersensitive to any perceived slight or infringement on its national sovereignty. This is a byproduct of being pushed around by Western powers not all that long ago. While
Japan tolerated the railings of U.S. politicians against its "unfair" trade practices with little public reaction, China's fuse is cut much shorter. Along those lines, this currency move reminds investors that China can be a major destabilizing force in the global economy if and when it wants to do so. While U.S. and European political and financial heads try to triage the Greece situation, China stands by with the ammunition to cause yet another global credit crisis

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