Effect of the Revaluation of the Renminbi in the Economy of China - Dissertation Example

Download file to see previous pages The conclusion to the research problem will be guided by the following research questions:
(1) What is the reason for the international pressure to revalue the renminbi?
(2) How has China’s foreign exchange rate policy evolved since it opened its economy to international trade in the 1980s?
(3) What effects within the Chinese economy are expected to be created by the adoption of a policy of currency revaluation?
(4) What effects on China’s international trade relations are expected to be created by the adoption of currency devaluation as a policy over the renminbi?

1.5 Significance of the research problem
China is a major global economic power and arguably may be perceived as equal to the United States in economic dominance, according to some surveys (Ohlheiser, 2012). To date, China is the most important country in international trade; however, its undervalued currency continues to be the center of contention for many countries, particularly the United States which attributes a great proportion of its balance of payments and trade deficits to China’s undervalued currency. While all parties agreed that revaluation should take place, China is concerned that should this be done too quickly, then it may redound to economic instability in the domestic market. This dissertation is therefore important in shedding some light on the likelihood of post-revaluation repercussions, and to determine whether or not China’s present policy of gradual and controlled revaluation should be maintained or revised.

1.6 Definition of terms
For the purposes of this dissertation, the following terms and their operational definitions are adopted to be used in the discussion.
Appreciation - The increase in value of one currency relative to another currency as a result of the market forces of supply and demand (Neelankavil & Rai, 2009, p. 247).
Capital account balance - The net change in a nation’s asset ownership, resulting from the inflows and outflows of public and private investments. It includes foreign direct investments, portfolio, and similar short-term investments, and the change in the reserve account. The capital and current accounts combined comprise the balance of payment of a country (Arnold, 2008). ...Download file to see next pages Read More