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Áß±¹ÀÇ °íÁ¤ ȯÀ²Á¦ ¿µ¹® ¿Ã¸³´Ï´Ù fixed exchange rate system of China-Why U.S. wants china to revaluate CNY
[Áß±¹ÀÇ °íÁ¤ ȯÀ²Á¦ ¿µ¹®] fixed exchange rate system of China-Why U.S. wants china to revaluate CNY
Final Group Project
The issues on fixed exchange rate system of China
- Why U.S. wants china to revaluate CNY? -
¥°. Introduction
¥±. Overview of current situation
¥². Economic analysis of the case
¥³. Conclusion
Content
Part 1 ::
Introduction
01 Brief summary of the article
02 The reason why we choose our topic
What is our topic?
US government argues that China should appreciate its currency, but China sticks to fixed exchange rate system since global financial crisis.
I think that China is manipulating its currency¡±
¡°China would keep the CNY stable at an appropriate and balanced level, rather than flexible.¡± (On March 4, 2009)
Brief summary of the case
Source : ¡°Detroit Rules, OK?¡± Economist, March 30, 2000
He argues that international trade imbalances is getting worse nowadays.
WHY?
U.S. trade deficits
Chinese trade surpluses
Devaluation of China currency
1
Fixed exchange rate
2
What is our topic?
US-China trade deficit is greatly increasing, and US government also argues that one of main triggers is fixed exchange system of China.
US-China Trade Deficit 1990-2008, Unit: U$ bil
Source: US Census Bureau
The CNY-dollar exchange rate has not changed during the third quarter of year.
Double deficit : Trade deficit + Financial deficit
? Weak Dollar to expand export.
Why we choose this topic?
Nowadays, it becomes an international controversial issue not only between US-China but also between China and other nations.
So, Paul Krugman says that ¡®China¡¯s weak-currency policy deteriorates depressed world economy, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.¡¯ - November 15, 2009 New York Times-
Comparison of Revaluation rate among Asian countries
Value changing of CNY with dollar and yen
Part 2 ::
Overview of current situation
01 Background information
02 Current situation
Background Information
How does China fix the exchange rate?
But, free capital mobility is NOT applied to China!
Central
Bank
Market
CNY
U.S. $
(1 + r) = (1+r*)
r* = foreign country¡¯s rate
e = future spot rate
= expected future spot rate
Precondition :
¨ç free capital mobility
¨è fixed exchange rate system
Monetary policy is possible.
Interest parity condition
[Largest U.S. $ holding country ]
Absolute P.P.P
Relative P.P.P
[CNY P = $P? R]
[R = CNY P/ $P]
Equilibrium exchange rates are equal to the ratio of price levels in the two nations.
Change in the exchange rate is equal to the difference in the change in the price levels.
Current situation
How much is CNY devaluated? - PPP theory.
What is Purchasing Power Parity theory?
The law of one price : in the absence of barrier to trade the p
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