The government of China modified its currency policy on July, 2005 and made an announcement that the government would not interfere with the currency, it is a guarantee that exchange rates would become adjustable based on demand and supply in the market. In 2008, China halted its currency appreciation policy because of decline in global demand for Chinese products. This led to millions of migrant workers lost their jobs and resulted to government intervention preventing any further appreciation against the dollar. In 2004, China’s current account increased its reserves from 469 billion to $421 this is historic because it had never risen to that high, this happened in 2008. These researchers will look at economic issues in China and the current debt surrounding China’s policy. It will also highlight the cost and benefits of China and the United States economic currency policy.
Since 2003, the congress has introduced legislation to address China’s currency policy in almost every session.. The senators have introduced a bill which would require action against certain misaligned currencies. These concerns by congress over misaligned currencies are extended to other countries, leading to some members proposing that currency will be included in the future.
Since 2005, China has been gradually reforming its currency policy, and between then and 2010 the currency has appreciated by 34% on a nominal basis and 425 against the U.S dollar. In recent years, China trade surplus has fall and its accumulation of foreign exchange reserve has fallen. From the analysis, many analysts have concluded that the renminbi exchange rate with the dollar may be approaching market levels at its best.
China government has continued to making its currency policy more flexible, and government is contended that, currency reforms in the country owe a long term interest to the economy because it would boost and make it more efficient. Some of the economists are in doubt whether; the Chinese currency appreciation would be of significant benefits for the U.S. economy. The high chances are that, prices for Chinese products are likely to rise, which would hurt the consumers and firms in Unites States. In addition, an appreciation of the Chinese currency is likely to lessen the need for the government to purchase U.S products. Appreciation of the currency, would do little to shift manufacturing done by foreign firms, instead such firms are likely to shift their products to other East Asian countries.
In the early 1994, China maintained and exchange rate system. These systems are used mostly by the exporters in swap markets, the official exchange rate in was 5.77 versus 8.70 in the swap market. A move which is mostly criticized by the United State because of the restrictions it had on imports. This move led to the Chinese government unifying the two exchange rates at the rate of 8.70 Yuan to the dollar and later in 1997 increased to 8.28. Renminbi became largely convertible on the current account making it hard for the currency to be obtained for investment purpose.
During the last decade, the most interesting thing in the Chinese market was the theme. This was catalyzed by the rapid growth, exhibited by its economy and efforts to open its capital market China became an investing market with high potential. Its growth is being challenged by the most recent years on the US housing crisis. China ETFs offer multiple and effective ways to access the market, and because of the shares it has this has led to Chinese equity market to be complex and limited. ETFs on the other side have made it easier to access many corners of the market, with 132 Chinas focused products listed in 22 countries. EFTs has offered the off-shore and the on-shore markets as well as various strategies to investors around the globe.
It is important to consider the size of its economy and the market despite the current economic slowdown. However, with this believe that, over 130 China EFTs listed around the globe, this would lead to investors doing well in getting acquainted with the current ETF offerings available to them. In addition to that, Chinese equity market remains underrepresented among global investors’ portfolios, mostly because of the foreign investment and free float limitations found in the local market. Many economists are questioning the quality of china’s massive investment efforts and the ability on the government to repay the loan.
Morrison, Wayne. China’s Currency Policy: An Analysis of the Economic Issues. Retrieved on February, 19, 2014.From. https://www.fas.org/sgp/crs/row/RS21625.pdf
Robert, Scott.” Growing U.S. Trade Deficit with China Cost 2.8 Million Jobs.”Economic policy Institute.N.P.2011.
Gupta, Somiran. China’s effect on U.S dollar performance in Global Markets Retrieved on February,19,2014.From.http://www.stern.nyu.edu/cons/groups/content/documents/webasset/con_042962.pdf