Bfw3331

In recent years, China has experienced a phenomenal increase in its economy growth, largely thanks to its growth in share in world exports, which explains trade competitiveness relative to other countries. Though the RMB has officially de-pegged from the USD and instead fixed to a basket of currencies, turning its foreign exchange strategy into a managed float regime and appreciate slightly against the USD, its record of continuous increase in exports has run out from the fundamental path that experts expected. This proves that the RMB is still far undervalued against the USD; despite it hits the appreciation target by the US monetary personnel of 20% in 2008, from RMB8.141/USD after its de-pegging in July 2005 to

However, the substantial annualized rise in exports for China has garner criticism from other developed countries, typically the western countries, especially the United States of America (USA). It is deemed that China has exercise an unfair trade practice, which increased its competitiveness in international trade by stimulating exports and sometimes decreasing imports. To do this, the Chinese had to keep their currency cheap in order to encourage domestic and foreign consumers and producers to opt for Chinese goods. Thus, the Chinese monetary authorities, especially the People’s Bank of China (PBOC) need to ensure that its currency is cheap by undervaluing it relative to the currency of its trading partners by continuously active intervening in the foreign exchange market to buy foreign currency in goal to inject domestic currency, in this case, RMB into the economy to keep the value of RMB from rising.

In Table 2, the foreign reserve accumulation of China has risen in a very fast pace. This indicates that the monetary authority has intervened heavily to keep its currency value low, and as others said, away from the equilibrium value if it were to be left freely floated.

It is important to note that when the exchange rate is denoted as...