Controlability of the RMB

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Controllability means that changes in the RMB exchange rate can be controlled through macro-management. The reform should be propelled, but not be uncontrolled. Fluctuations in the financial market and economy should be avoided. Gradualness means to push the reform step by step, taking both present demand and long-term development into consideration. All in all, China will continue to improve the formation mechanism of the RMB exchange rate, and further complete an exchange rate system gearing to the market with more flexibility. But the reform is broad and has far-reaching influences. A lot of preparation should be done, and favorable conditions and environment are to be created so that all aspects can bear out the possible influences. China's responsible attitude and action is beneficial not only to the stability and development of China's macro-economy, but also to the stability and development of the economy of neighboring countries and the world. RMB has appreciated by 34% since 2005 when China finally began to change its policies pertianing to intervention in currency markets. Since then the accumlation of forex reserves have slowed down and trade surplusses have fallen sharply. These facts suggest that RMB may be slowly approaching the fair market levels. Thus many goverments advocate than pressure on China should be continued. Also they believe that given the size of China's economy if China's currency reaches its market level many global imbalances may be reduced. US borrowers are affected by an undervalued RMB. If there is a current account deficit with China an equivalent amount of capital flows into US from China. Hence as a result US has an increased amount of capital at its disposal because Chinese investors are inve... ... middle of paper ... ...a that China's central bank is sitting on huge amounts of forex reserves. It hold huge amounts of US Treasury Securities which it has accumalated in past thirty years. Current account surplus of China has decresed significantly in recent years. In 2011 IMF pointed out that RMB was significantly undervalued but in 2012 and 2013 it said that it was moderately undervalued. China's currency policy has a significant impact on other countries and is closely watched by them. China though is slow movinf towards freeing its currency but still it has a long way to go. Chinese goverment is being very cautious and is interested in maintaing control over the currency. Major global economic institutions have warned China that its strategy of artificially undervaluing its currency to boost exports is not sustainable and that it should focus on increaasing its domestic consumption.
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