China in 2005 - The Yuan Revaluation and Beyond


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Case Details:

Case Code : ECOA137
Case Length : 16 Pages
Period : -
Organization : -
Pub Date : 2005
Teaching Note :Not Available
Countries : China & World Economy
Industry : -

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

The Yuan Revaluation

China's decision on 21st July 2005, to revalue its currency upward by 2.1 per cent and scrap its peg to the US dollar in favor of a managed float marked the first change in the value of the renminbi (RMB), or Yuan, since 1997, when its rate was set at 8.28 to the dollar. PBC stated that it would allow the RMB to trade within a band of 0.3 per cent for the first time...

The Global Implications

The Yuan revaluation might have a major impact on the international monetary system. As an academician commented :

"It may be the beginning of the unravelling of the so-called Bretton Woods II regime, a regime that has allowed, until now, the cheap financing of the US 'twin' deficits (budget and trade)."...

The Road Ahead

Opinion remained divided on the long term impact of the Yuan revaluation. If abandoning its dollar peg caused China to reduce its purchases of T-bonds, then yields would rise. But this depended on several uncertainties...

Exhibits

Exhibit 1: China
Exhibit 2: China's Economic Indicators
Exhibit 3: China's Economic Indicators (Projections)
Exhibit 4: China's Foreign Trade
Exhibit 5: Merchandise Exports to and Imports from China 2003 ($ billion)
Exhibit 6: China's Exports, % of World Total
Exhibit 7
Exhibit 8: Major Foreign Holders of Treasury Securities
Exhibit 9: Yuan Shift China - One Year CNY/US$ NDFs

 

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