Chinese Exchange Rate Policy and Other Economies - Dissertation Example

Download file to see previous pages For instance, the qualitative research approach has been used to investigate the impact of the Chinese exchange rate policy on South East Asian Economies, as this requires a qualitative evaluation of the policy being followed by the Chinese government over the years. On the other hand, the quantitative research approach has been considered justified in the evaluation of factors that influence the changes in the exchange rate of the Chinese Yuan and the US Dollar. The study has revealed that there has been a significant impact of the Chinese exchange rate policies on the ASEAN members’ preference for the Chinese Yuan as a currency for international settlements. In addition, the study has concluded that the exchange rate for the Chinese Yuan against the US Dollar has been influenced by the money supply in China, the difference in real interest rates for China and the US, and the growth in inflation rates for China and the US.

Chapter 1 - Introduction
1.1. Background to the Context
According to Yue and He (2008) Asian economies have witnessed an increasing trend in the use of the Chinese Yuan as an international currency. In fact, in some South East Asian countries, the Chinese Yuan is preferred as a medium of exchange over other currencies. Keeping in view these changes in the macroeconomic and trade conditions in the South East Asian region, it can be stated that the Yuan is gradually emerging as an international medium of exchange in line with the US Dollar and other notable currencies (Yue & He, 2008).

In the past decade, China has been able to surpass its peers with respect to economic development through its extraordinary growth. By the end of 2010, China’s economy was able to share 8 percent of the world’s GDP and stepped over Japan as the second-largest global economy (Jackson, 2012). A thorough investigation of Chinese economic policies reflects a close association with policies that Japan pursued after the Second World War. In other words, China has been able to report remarkable economic growth while following in the footsteps of Japan. One of the most prominent features of Chinese economic growth which is yet highly debatable has been its pegging of the Chinese Yuan against the US Dollar (Jackson, 2012).

At present, global economic powers, particularly the United States government, have put significant effort and pressure on the Chinese government to introduce a more flexible exchange rate policy and allow the Chinese Yuan to appreciate. In fact, the mindset in the United States is that it is due to the stringent policy measures taken by the Chinese government in relation to its exchange rate regime that has led to the downfall of the US economy and the present global economic imbalance. To economists, who have kept a close eye on Chinese economic policies, the Chinese Yuan is still undervalued to a great extent, which as a consequence gives a manipulative advantage to the exporters in China (Bergsten, 2007). These perceptions and changes in the regional and global trade scenario present an interesting area of investigation to be explored; what influence has the Chinese Yuan placed on other economies and what factors have been influencing changes in its exchange rate against the US Dollar? ...Download file to see next pages Read More