Political Economy of Yuan-Dollar Exchange rate

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The Chinese exchange rate policy has been one of the top topics of debate in recent years. It has attracted a great deal of attention in academic and policy area due to the slower pace of economic growth and manufacturing job creation from the beginning of 21st century and recent financial crisis in United States. China has been accused of pursuing new mercantilist policy, that is, encouraging export and impeding import mainly through the manipulation of exchange rate between Chinese currency known as Renminbi and US dollar. China was maintaining its currency strongly pegged with US dollar from 1994. Some recognised economists and policy makers are repeatedly blaming the Chines exchange rate policy for the prolong financial crisis and sluggish recovery where as some other prominent economists provide the different opinions. The debate on Chinese exchange rate policy started from the East Asian crisis in 1997. But it has been intensified only after the publication of some articles on economic newspaper in western world (Financial Times) and in Japan (Nihon Keizai Shinbun). Afterwards, government officials of USA and Japan on many occasions urged and pressurized the Chinese authority to allow more flexibility for the movement in the Chinese exchange rate. In G7 meeting of 2002, the Japanese Finance Minister Masajuro Shiokawa raised the concern over the manipulation of currency exchange rate by China, and asked the G7 community to jointly put pressure on the China to appreciate its currency so as to combat global deflation. The then US President George W. Bush and Sectary of Treasury John W. Snow also touched this issue during the different meetings with different Chinese high officials on various occasion in 2003. In early 20... ... middle of paper ... ...(2003): 267 Rogoff, Kenneth. "Deflation: Determinants, Risks and Policy Options-Findings of an Interdepartmental Task Force". International Monetary Fund, 2003 T'ang, L. L., and Thung Liang Lee. "The Problem of Chinese Currency." Economica (1923): 109-121 Williamson, John. "Estimates of FEERS." Estimating Equilibrium Exchange Rates 177 (1994): 245 Williamson, John. "The renminbi exchange rate and the global monetary system." Lecture at the Central University of Finance and Economics, Beijing, October 29 (2003). Wu, Hsiu-Ling. "Testing for the fundamental determinants of the long-run real exchange rate: The case of Taiwan." In Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pp. 377-402. University of Chicago Press, 1999 Yu, Yongding. "Eliminating the Dread to RMB Appreciation." (2004).

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