China and its Dollar Exchange Rate: A Worldwide Stabilizing Influence?
Stanford University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
University of Leipzig - Institute for Economic Policy; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
May 17, 2011
CESifo Working Paper Series No. 3449
We argue that criticism concerning the Chinese dollar peg is misplaced as no predictable link exists between the exchange rate and the trade balance of an international creditor economy. The stable nominal yuan/dollar rate is argued to have stabilized Chinese, East Asian and global growth. However, linked to US low interest rates, Chinese sterilization policies and potentially subsidized capital allocation in China the real yuan/dollar rate is undervalued. This has caused - both in China and the United States - structural distortions and threatens to undermine global growth and stability. We propose Sino-American policy coordination to escape from the policy dilemma, which continues to drive global imbalances.
Number of Pages in PDF File: 29
Keywords: China, exchange rate, financial stability, economic stability, international policy coordination, currency war
JEL Classification: F150, F310, F330working papers series
Date posted: May 17, 2011
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