The Political Obstacles to Greater Exchange Rate Flexibility in China

19 Pages Posted: 14 Apr 2008  

Stephen B. Kaplan

George Washington University - Department of Political Science; George Washington University - Institute for International Economic Policy (GWIIEP)

Abstract

An undervalued currency has arguably helped China pursue an East-Asian style export-led model of development, spurring economic growth and job creation. Recently, however, the undervalued exchange rate has exposed China to a raft of growing major financial and economic vulnerabilities, including an overheating of the domestic economy and renewed financial sector difficulties. Despite these risks, Chinese leaders have refused to significantly revalue the renminbi, suggesting that political objectives are taking precedence over economic optimality. I aim to glean insight into such political explanations by building upon present theories in political economy.

Keywords: China, exchange rates, political economy, financial policy, economic development, income inequality

JEL Classification: F31, G18, O11, O53, O16

Suggested Citation

Kaplan, Stephen B., The Political Obstacles to Greater Exchange Rate Flexibility in China. World Development, Vol. 34, No. 7, 2006. Available at SSRN: https://ssrn.com/abstract=1119082

Stephen B. Kaplan (Contact Author)

George Washington University - Department of Political Science ( email )

Department of Political Science
Monroe Hall 470, 2115 G Street, N.W.
Washington, DC 20052
United States
202-994-6680 (Phone)

George Washington University - Institute for International Economic Policy (GWIIEP) ( email )

1957 E Street, N.W.
Suite 502
Washington, DC 20052
United States

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