Pegged Exchange Rate of Chinese Yuan and Its Impact on Us Economy

Pegged Exchange Rate of Chinese Yuan and its Impact on US Economy

Lalit Khowala

Texas A & M - Commerce

BA 595 Applied Business Research

Dr. D. English

July 04, 2012

Abstract

Chinese Yuan is undervalued and China had pegged Yuan’s exchange rate in relation to US dollar to have a trade advantage is believed by many economists and analysts. This policy has helped China to accumulate a huge foreign reserve in US dollars and is on the way to become a super power in near future. As Yuan is undervalued against US dollar, US companies are exporting Chinese products and finding it difficult to import US products to China. This is leading to a huge trade deficit between two countries and China is the clear winner.

In this research study, we will try to find out how Chinese currency policy has impacted US economy.

The Pegged Exchange Rate of Chinese Yuan and its Impact on US Economy

Chapter 1

Introduction

Background

It is believed that the increasing trade deficit of US with China is due to the currency policy. China in the past few years has a policy to keep Yuan at a stable rate or we can say that the exchange rate was pegged against US dollar. This has lead to a huge surge in the foreign exchange reserve and was around 2.85 trillion U.S. Dollars by end of 2010. Due to cheaper Chinese currency in relation to U.S. dollar the imports from China are more than exports to China and this is causing a huge trade deficit every single year. It is estimated that by end of 2014 china’s current account balance will be 645 U.S. billion dollars.

Lot of discussion, debates is going on in regards to China’s exchange rate policy. This has excited me to do a research and find out what exactly China did with currency policy which helped them to gather a huge foreign reserve. This study will also provide me information related to foreign reserve of china, steps US Government is taking to deal with huge trade deficit that is happening every single year....