Yuan Devaluation Essay

3631 Words Apr 22nd, 2016 15 Pages
Financial Markets
&
Institutions
Group Assignment
Yuan Devaluation
Group 2
Group Members
Kouadio Dieudonne XPGDM-18
Rohit Khandelwal XPGDM-28
Shruti Tibrewal XPGDM-32

COUNTRY AT A GLANCE Population | 1.364 billion | 2014 | GDP | $10.35 trillion | 2014 | GDP growth | 7.3% | 2014 | Inflation | 2.0% | 2014 |

CHINA

Economic Overview

The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second largest economy. In 1978—when China started the program of economic reforms—the country ranked ninth in nominal gross domestic product (GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of USD 9.2 trillion.
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Apparently, China exited the financial crisis in good shape, with GDP growing above 9%, low inflation and a sound fiscal position. However, the policies implemented during the crisis to foster economic growth exacerbated the country’s macroeconomic imbalances. Particularly, the stimulus program bolstered investment, while households’ consumption remained repressed. In order to tackle these imbalances, the new administration of President Xi Jinping and Premier Li Keqiang started to unveil economic measures aimed at promoting a more balanced economic model at the expense of the once-sacred rapid economic growth.
China’s Exchange Rate Policy

The IMF labels China’s exchange rate regime as a crawl-like arrangement. The speed and direction of the crawling peg is decided by Chinese authorities according to domestic and international economic developments. The PBOC classifies its regime as a managed floating exchange rate regime based on market supply and demand with reference to an undisclosed basket of currencies.
From 1995 to 2005, China kept its currency fixed versus the U.S. dollar at around 8.28 CNY per USD. This was the case until 2005, when it switched to a managed float of the currency to facilitate a controlled appreciation of the CNY. However, in the wake of the global financial crisis, China pegged its currency to the USD at 6.82 CNY

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