Monetary Policy Case Study

Yuan: To Peg or Not to Peg

OR

Abstract:
The Chinese Yuan is pegged to the US dollar and the exchange rate is maintained by large-scale purchases of the dollar from the open market by the People's Bank of China. Buoyed by an undervalued Yuan, China has been enjoying large trade surpluses with the US and has built huge foreign exchange reserves. This, coupled with a fall in the US dollar, has increased pressure on China to remove the dollar peg or at least make the Yuan more flexible. But China has been resisting such a move

Pedagogical Objectives:

• To discuss the implications of the Yuan-dollar peg and the impact on the trade between the two countries.

Keywords : Chinese yuan, renminbi, US dollar, Currency pegging, Balance of payments, Reserve currency, Exchange rates, Unemployment, Asian financial crisis, Chinese economy, Monetary Policy Case Study, China's foreign trade, China's exports and imports, People's Bank of China, Inflation rate, Free float, The Big Mac Index