Part 1: China\'s Renminbi (60 points) This segment deals with the prospects of C
ID: 1130460 • Letter: P
Question
Part 1: China's Renminbi (60 points) This segment deals with the prospects of China's currency and its economic motivations. You should read the following articles to get some background information (no logical order). Feel free to do some further research if required. The articles can be found under: D2L> Content> Exchange rates> Take home articles .8 things you need to know about China's economy - World Economic Forum . China's economy_A remarkable transformation - OECD Observer . China's tight capital controls fail to address underlying problems Financial Times China's Foreign Reserves Just Plunged to the Lowest Since 2011- Fortune Inflation and its impact on the Chinese economy - Foreign Policy News . On Trade, Angry Voters Have a Point - The New York Times Trump Isn't Wrong on China Currency Manipulation, Just Late - The New York Times Please answer the following questions: a) Based on the figure provided below, did the USD depreciate or appreciate against the Chinese Renminbi over the last five years (on average)? Also, roughly how many Renminbi would you currently need to purchase 1 Dollar (USD)?Explanation / Answer
a. The figure above depicts a downward sloping curve which shows that Renminbi was depreciating till 2016 but recently it has been observed that the Chinese currency has appreciated with respect to dollar. We need around 6.67 Renminbi recently to purchase one dollar.
b. Most of the currencies in the world are freely floating. China was also critiqued by other countries for keeping its country depreciated which was hampering capital inflows in China. It was also proving to be a hindrance in its inclusion in the reserve currencies list given by International Monetary Fund. Thus, China turned away from artificially devaluing its currency.
c. The appreciation of the currency with respect to dollar has implications for both exporters and importers and also for the consumers. Considering the impact on U.S., this has led to decline in the exports from China as the currency has become expensive with respect to dollar. Thus, domestic U.S firms have benefited. The consumers have suffered as they will have to pay higher price for the Chinese product now.