StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Chinese Foreign Currency Reserves Swell by Record Amount - Article Example

Cite this document
Summary
A high level of reserves causes the renminbi to appreciate against the dollar. The problem is this will make China’s substantial exports more expensive; thus, losing its competitive…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.8% of users find it useful
Chinese Foreign Currency Reserves Swell by Record Amount
Read Text Preview

Extract of sample "Chinese Foreign Currency Reserves Swell by Record Amount"

Chinese Foreign Currency Reserves Swell By Record Amount Chinese Foreign Currency Reserves Swell By Record Amount Main purpose of this article: This article tries to raise public alarm over the swelling foreign exchange reserve levels of China and how this contributes to the country’s “worsening inflation problem” (Bradsher, 2011).Why does a high level of foreign currency reserves lead to inflation? This has to do with its effect on the renminbi’s exchange rate vis a vis the US dollar.

A high level of reserves causes the renminbi to appreciate against the dollar. The problem is this will make China’s substantial exports more expensive; thus, losing its competitive advantage. This then could lead to the loss of jobs by millions of people working in the export industry. This led to China’s central bank’s decision to keep the value of its currency low. To do this, it prints renminbi at a “furious pace in order to buy the dollars and euros” that come in through trade surpluses and foreign investment (Bradsher, 2011).

However, this spawns another problem. The additional renminbi issued causes the money supply in the country to rise even further. What was not discussed in the article is the direct impact of the level of money supply on inflation. A high level of money supply circulating in the economy causes aggregate demand to rise. This increased demand for goods and services is what pushes general prices to go up.Looking at China’s foreign reserve levels, in the third quarter of 2010, it increased by $194 million.

In the fourth quarter, it jumped by $199 million to raise the total to $2.85 trillion. This increase was much larger than what economists had expected. During this time, China “doubled its intervention in the currency markets to about $2 billion a day” (Bradsher, 2011). And so, the country’s money supply was 19.7 percent higher in December than a year earlier. The increase in money supply though is not solely due to the central bank’s efforts to keep the value of the renminbi in check.

Banking loans have also risen and measures taken by the central bank to slow down lending, primarily by increasing bank reserve requirements have proven to be ineffective.ReferencesBradsher, K. (11 January 2011). Chinese foreign currency reserves swell by record amount. The New York Times. Retrieved 14 June 2011. http://www.nytimes.com/2011/01/12/business/global/12yuan.html?_r=1

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Chinese Foreign Currency Reserves Swell by Record Amount Article - 1”, n.d.)
Chinese Foreign Currency Reserves Swell by Record Amount Article - 1. Retrieved from https://studentshare.org/business/1577779-chinese-foreign-currency-reserves-swell-by-record-amount
(Chinese Foreign Currency Reserves Swell by Record Amount Article - 1)
Chinese Foreign Currency Reserves Swell by Record Amount Article - 1. https://studentshare.org/business/1577779-chinese-foreign-currency-reserves-swell-by-record-amount.
“Chinese Foreign Currency Reserves Swell by Record Amount Article - 1”, n.d. https://studentshare.org/business/1577779-chinese-foreign-currency-reserves-swell-by-record-amount.
  • Cited: 0 times

CHECK THESE SAMPLES OF Chinese Foreign Currency Reserves Swell by Record Amount

PRCs Central Bank

As regard to the banks, their assets, particularly deposits will decrease and the same amount will increase the reserve in the “Liabilities” portion in their Balance Sheet.... Expectedly, the assets of the Central Bank either in receivables or deposits will increase as well as their reserves.... Normally, banks hold two bank reserves, one is use for cashing checks or satisfying client's withdrawals while the other is called “legal reserves” or sometimes called “federal reserves” or central bank reserves....
4 Pages (1000 words) Essay

Current and potential power of the Chinese currency in a global financial economy

Chinese companies account for the share of lion's of China capital outflow, most of which comes from China's big and developing foreign trade reserves.... Furthermore, Chinese government firms like the State Administration of foreign trade, Chinese Investment Company, state-owned companies, state banks, might have been more disclosed to distressed American mortgage securities.... These limitations restrict the capacity of chinese residents and many companies to invest outside the country, forcing them to invest locally even though, some chinese try to move funds outside the country illegitimately....
7 Pages (1750 words) Essay

Exporting Nike Footwear, Apparel, and Equipment to China

As per now the USD is international currency and Euro and Yen are trying to replace it.... For this purpose the currency should fulfill the classical money functions.... This makes the countries like china to have US currency up to some extent and this leads to appreciation of that currency resulting in increasing the import costs.... If any country wants to appreciate its currency, it must be accepted by lot of people and countries in the world....
9 Pages (2250 words) Essay

The Political Economy of Chinas Development Model

All countries involved in international trade reserve some foreign currency for the sake of trade with one another.... They point out that the cause of this crisis is the irresponsibility of the rich Chinese who have thrown good money after bad with crazy speculative investments of foreign reserves on failed foreign financial organizations.... The author takes into account the international reserve currency, the socialist perspective, variations in development approach: China vs Eastern Europe, challenges of economic growth....
7 Pages (1750 words) Case Study

China: factory to the world

Though the country has seen growth and prosperity under the political reign of the China Communist Party, there is still some amount of discontentment as the people of China crave for more personal and political freedom.... China is subjected to external political pressure on several issues regarding is treatment of its people, and at times, the external business agencies try to influence the Chinese record on labor management, safety norms and wages etc.... The economic and social development of the country is truly possible only if the people of China are committed and involved – things that the current political position of the chinese government does not encourage....
5 Pages (1250 words) Research Paper

Yuan an international medium of exchange

But once the Yuan becomes accepted as an international medium of exchange and thus becomes a global currency, it would become “a unit of account for denominating international financial transactions, and a store of value for central banks' foreign exchange reserves”.... … The strength of the currency of any country is of prime importance to the economic survival and general promotion of trade and business in that country.... The value of the currency among other things influences the prices of goods and services and general cost of doing business....
8 Pages (2000 words) Research Paper

Intervention of Central Bank for Exchange Rate Volatility

Foreign exchange trading is referred to transacting of one currency in exchange of others.... Fixed exchange rate, which is also known as pegged exchange rate, is referred to the arrangement of price determination where rate of one currency (national currency) with respect to other foreign currencies is kept fixed by means of government intervention.... Economic liberalisation and global integration has increased demand for foreign exchange trading across various countries as more and more countries are getting involved in cross-national trading and foreign investment activities....
7 Pages (1750 words) Essay

The Role of China's Economy in the Global Imbalance

What are the phases of China's foreign exchange policies?... There are so many contradictory views about the role that the chinese economy plays in globalization, particularly in the deepening global imbalance.... There are so many contradictory views about the role that the chinese economy plays in globalization, particularly in the deepening global imbalance....
10 Pages (2500 words) Literature review
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us