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Exchange Rate Policy, Growth, And Foreign Trade In China

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  • Mirjana Gligorić

Abstract

This paper analyzes a hot topic: the influence of an undervalued currency on macroeconomic variables - primarily on the economic growth and trade balance of a country, but also on employment, foreign exchange reserves, competition, and living standards. It also reviews and explains the consequences of yuan undervaluation, points out the need for its appreciation, and states the negative effects that stem from this measure. Special attention is given to the problematic bilateral relations between China and the USA and the reasons why Americans are worried about the exchange rate policy that China implements. Although yuan appreciation would decrease the American foreign trade deficit, it also raises the question of further financing of the American deficit. There are also other problems that the possible appreciation would cause for the American economy, due to the effect of J-curve, pass-through, larger costs of input imported from China, etc. Therefore, Chinese foreign exchange policy is an important subject, but it is not the solution to the problems of the global economy – which have deeper roots than that. However, there is no excuse for China implementing unfair exchange rate policies, or replacing such policies with controversial protectionist policies (as some authors have suggested).

Suggested Citation

  • Mirjana Gligorić, 2011. "Exchange Rate Policy, Growth, And Foreign Trade In China," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 56(190), pages 103-139, July – Se.
  • Handle: RePEc:beo:journl:v:56:y:2011:i:190:p:103-139
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    References listed on IDEAS

    as
    1. William R. Cline & John Williamson, 2010. "Estimates of Fundamental Equilibrium Exchange Rates, May 2010," Policy Briefs PB10-15, Peterson Institute for International Economics.
    2. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
    3. John Williamson, 2009. "Exchange Rate Economics," Open Economies Review, Springer, vol. 20(1), pages 123-146, February.
    4. Ansgar Belke & Christian Dreger & Georg Erber, 2010. "Reduction of Global Trade Imbalances: Does China Have to Revalue Its Currency?," Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 6(30), pages 223-230.
    5. William R. Cline & John Williamson, 2009. "2009 Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB09-10, Peterson Institute for International Economics.
    6. Willem THORBECKE, 2010. "The Appropriate Policy Mix for China," Policy Discussion Papers 10002, Research Institute of Economy, Trade and Industry (RIETI).
    7. William R. Cline & John Williamson, 2008. "New Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB08-7, Peterson Institute for International Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    undervalued yuan; appreciation; economic growth; foreign trade balance; bilateral relations between China and the USA;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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