...The Yuan: The Future Value of RMB Under the Economy of the World Shanghua Chi AWB Introduction From whatever point of view, economic growth is always the most crucial factor in deciding the value of currency for a country. In China, one of the biggest developing countries, the appreciation of the RMB has risen by 28% since 2005, and it has been close to 4.5% growth per year. (Chinese Yuan, 2011) The question is what is the future of RMB? Will it continue in a rising trend? What things can be affected by the change of currency value? In general, the currency value will change when the relation between supply and demand is becoming different. “A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply.”(Exchange rate, 2011) However, answering to these questions involves more complicated aspects: world trading situation, inflation level, and unemployment rate. There is an interactive relationship, which exists between these aspects and the exchange rate. Therefore, to predict the target value of RMB is extremely important for running China. Combined with current reports and researches, I came to a conclusion that the predicted value of RMB should not rise dramatically, and is better to keep the present value. Opposing position The opposing point is that the value of Yuan should rise up. There are broad concerns among economists on a global scale...
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...future direction of the RMB/USD exchange rate (using info provided in the case). China’s decision to release its currency from the decade long peg (approx. 8.28 Yuan per USD) raised multiple concerns within the global economic community. Many economists welcomed the decision while still others questioned it. Below is a brief description of the various arguments presented on the topic. Political: With the value of the Dollar decreasing over the recent years, the western governments are less pleased with China maintaining its currency at a fixed rate. The US and EU are of the opinion that the quasi-fixed exchange rate gives China a competitive advantage, creating a strain on their import surplus and thereby increasing their trade deficit with China. As of 2005, China’s exports and imports to and from the U.S was $86.9 and $27.6 Billion USD. Members of the US congress have threatened to impose tariffs against China if they do not agree to a revaluation. Allowing the Yuan to float would result in an increase in price of Chinese exports to the US and a decline in the price of US imports into China, hence narrowing their trade deficit. On the other hand, analysts argued that the increase in Yuan’s value between 94-01 was not an absolute result of inflation differentials between China and its trade partners. The large increase in exports over those years could be matched by increased imports. Moreover, it was noted that even post revaluation in 2005, the value of RMB non-deliverable forward...
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...China and the Esquel Group China and the Esquel Group In response to criticism of it pegging the Yuan to the US dollar, China recently implemented steps toward liberalizing its exchange rate policy; however, a floating Yuan has created uncertainty concerning its impact on China’s economy. While it is likely that allowing the Yuan to appreciate against the US dollar will result in undesirable impacts for China such as deflation, a reduction of foreign direct investment (FDI), and a decline in exports, we believe China will, and should, continue a tempered liberalization of its exchange rate policy. This is necessitated by the potential consequences China faces both politically and economically by not moving towards a floating rate. Politically, China will continue to absorb the majority of the blame for foreign countries’ rising trade deficits, spawning potential legislation dictating import quotas on Chinese products. Economically, a fixed exchange rate will continue to plague China by its dependence on exports and increase its risk of being able to maintain the value of its portfolio of foreign reserves, most notably the United States dollar. It is our belief that these risks outweigh the benefits of China continuing business as usual. As such, the Esquel Group should devise operational strategies that mitigate the risks of an appreciating Yuan, which include diversifying revenue streams by implementing a textile import division, pursuing growth in domestic textile...
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...1 Introduction 3 1.1 Background 3 1.2 Research method 3 1.3 Basic ideas and framework 3 2 The relevant theories of currency internationalization 5 2.1 Currency internationalization important related theory 5 2.1.1 The optimal currency area theory 5 2.1.2 Theory of international trade settlement currency 5 2.1.3 Financial deepening theory 6 2.2 RMB internationalization related definitions 7 2.2.1 The definition of RMB internationalization 7 2.2.2 The basic development policy of RMB internationalization and path 7 2.2.3 The overview of RMB internationalization process 9 3 The main historical experience of currency internationalization 12 3.1 Internationalization of the dollar 12 3.2 The internationalization of EURO 13 3.3 The yen internationalization 14 3.4 Summary of this chapter 15 4 The free trade area construction to promote the internationalization of the RMB 16 4.1 International comparison of free trade area 16 4.1.1 The EU 16 4.1.2 The china-Asian free trade area 16 4.2 The relationship between Free trade and the internationalization of RMB 18 4.2.1 The policies and their interpretation of Shanghai free trade area 18 4.2.2 Marketization of RMB exchange rate 20 4.2.3 The RMB interest rate marketization 21 4.2.4 RMB offshore market 22 4.3 The crisis and the risk of free trade zone 23 4.3.1 Risk of RMB business 23 4.3.2 Financial liberalization should be Shanghai free trade zone boundary 24 4.3.3 Risk control and benefit...
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...Financial Markets & Institutions Group Assignment Yuan Devaluation Group 2 Group Members Kouadio Dieudonne XPGDM-18 Rohit Khandelwal XPGDM-28 Shruti Tibrewal XPGDM-32 COUNTRY AT A GLANCE Population | 1.364 billion | 2014 | GDP | $10.35 trillion | 2014 | GDP growth | 7.3% | 2014 | Inflation | 2.0% | 2014 | CHINA Economic Overview The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second largest economy. In 1978—when China started the program of economic reforms—the country ranked ninth in nominal gross domestic product (GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of USD 9.2 trillion. Since the introduction of the economic reforms in 1978, China has become the world’s manufacturing hub, where the secondary sector (comprising industry and construction) represented the largest share of GDP. However, in recent years, China’s modernization propelled the tertiary sector and, in 2013, it became the largest category of GDP with a share of 46.1%, while the secondary sector still accounted for a sizeable 45.0% of the country’s total output. Meanwhile, the primary sector’s weight in GDP has shrunk dramatically since the country opened to the world. China weathered the global economic crisis better than most other countries. In November 2008, the State Council unveiled a CNY 4.0 trillion (USD 585 billion) stimulus package in an...
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...RMB as a Regional International Currency: Costbenefit Analysis and Roadmap Jing LI 1 Abstract With the rise of China, following the enhanced economic and trade relationship between China and Asian economies, and China’s increasing importance in the world economy, China’s national currency, the renminbi (RMB) will be getting global from Asia. As regional internationalization of RMB is doubleedged, in order to eliminate the financial risks brought by this process, maximize the benefits, it is necessary for China to consider the trade off between costs and benefits of RMB internationalization. RMB internationalization is a dynamic process, in accordance with the different level of the process, the phased strategy should be implemented, and the corresponding policies should be pursued too. Key word: RMB internationalization Cost and benefit Roadmap Introduction If you travel in the Asian region, you will notice that the Chinese renminbi is appearing more often in shops and restaurants, driven by the rapid growth in mainland tourist volumes. Will Chinese Renminbi be the next world currency? Since 2000, RMB internationalization has attracted great attention from the policymakers and the academics both at home and abroad. There is sizable RMB circulation in China’s neighboring countries and economies, even RMB can be fully convertible in some developed countries, some of neighboring countries and economies ...
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...leading exporter to the US. This surge in exports has been accompanied by growing trade imbalances between China and the rest of the world. China’s global current account surplus equaled 9% of Chinese GDP in 2006 and 11% of GDP in 2007 (Thorbecke & Smith, 2010). These surpluses are primarily with the US and Europe. Due to these factors, the exchange rate policy of China has attracted a great deal of attention in academic, industrial and political arenas. With the emerging China economy as the largest reserve country and the largest “world factory”, the Chinese renminbi (RMB) exchange rate has been the centre of ongoing debate over the source of global current account imbalance, especially with the United States (Sato, Shimizu, Shrestha & Zhang, 2012). Since the direct peg to the dollar was ended in 2005, the RMB has continued its appreciation about 6% per year and enhanced flexibility over the past 7 years. However, appreciation pressure on the RMB remains intense and it is still debatable whether and to what extent the current level of the RMB exchange rate is overvalued or undervalued. Issues Political Influences One of the main reasons for the appreciation pressure on the RMB is the US’ claim that the Chinese government has made the value of its currency artificially low by manipulating the exchange rate. The weakened RMB in turns spurs imports from China and undercuts exports to China, contributing to a widening trade gap between China and the US, Japan and the Euro...
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...A Viable Market for Inflation-Linked Products in China How serious is the inflation in China? According to official statistics, inflation rate in China is about 3%~4% at present, which seems very moderate. But this result contrasts with the feeling of Chinese people and is considered incredible. Other evaluation methods are proposed by economists, showing quite different outcomes. In the report Research of the inflation degree in China, Yanchen Qi selected prices of diesel and corn as samples and reached the conclusion that current inflation rate is nearly 30%. In addition, the compound inflation rate from 2000 to 2011 can be estimated using the price of pork, which increased from RMB 6 to RMB 15 per kilogram, with a compound inflation rate of 9.6%. What causes the inflation? External Factors Subprime mortgage crisis. This has led to the implementation of quantitative easing monetary policy in mainstream global currency markets, especially the Federal Reserve Bank (QE1 and QE2 totalled 2.3 trillion dollar). Its influence to China has two main aspects: Firstly, massive inflow of hot money. China's economic stability and prosperity gives a strong expectation of RMB appreciation. As a result, hot money flows into China through false declarations of trade, FDI and underground banks, pushing up asset prices. Secondly, “Dollar Flooding” forces China to increase money supply passively because exchange rate mechanism is not fully marketoriented, bringing about asset price inflation...
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...globalization has become widely used in recent years. How would you define it? = “I define globalization as producing where it is most cost-effective, selling where it is most profitable, and sourcing capital where it is cheapest, without worrying about national boundaries.” 2. CHAPTER 1, question 10: Financial Globalization. How do the motivations of individuals, both inside and outside the organization or business, define the limits of financial globalization? = If influential insiders in corporations and sovereign states continue to pursue the increase in firm value, there will be a definite and continuing growth in financial globalization. But, if these same influential insiders pursue their own personal agendas, which may increase their personal power, influence, or wealth, then capital will not flow into these sovereign states and corporations. The result is the growth of financial inefficiency and the segmentation of globalization outcomes, creating winners and losers. The three fundamental elements—financial theory, global business, management beliefs and actions—combine to present either the problem or the solution to the growing debate over the benefits of globalization to countries and cultures worldwide. 3. Problem 9-1 Americo’s Earnings and the Fall of the Dollar. The dollar has experienced significant swings in value against most of the world’s currencies in recent years. a. What would be the impact on Americo’s consoli-dated EPS if all foreign currencies were to...
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... Foreign exchange is essentially about exchanging one currency for another. The foreign exchange market is global, and it is conducted through the internet, over-the-counter (OTC) through the use of electronic trading platforms, or by telephone through trading desks. Some shorten the term to “forex” or “FX”. The OTC market is also known as the “spot”, “cash”, or “off-exchange” forex market. (A spot transaction refers to an exchange of currencies at the prevailing market rate.). The spot/cash/OTC/off-exchange forex market is not a market in the traditional sense, because there is no central trading location, or exchange. Rather, it is an interconnected and electronic network of bank traders, dealers, brokers and fund managers for electronic transfers of money from one account into another account. The interbank market is one in which huge banks, insurance companies, corporations and other financial institutions manage the risks associated with fluctuations in currency rates by trading in large quantities. The secondary market, that is, the OTC market has developed more recently permitting retail (Smaller)investors to participate in forex markets. The OTC market has many of the same characteristics of the interbank market but it doesn’t provide the same prices, as the size of trades, and the volumes, are much smaller. Trading forex is buying one currency while at the same time selling a different currency. Some companies who do business in other countries use forex markets...
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...dollar has been the central reserve currency for the world. A reserve currency, also referred to as an anchor currency, is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves (Carbaugh, 2011). As the world’s reserve currency, the U.S. dollar is used throughout the world as a medium of exchange and is used as the global currency for products traded within the global market. In recent years the status of the U.S. dollar has been contested by a select few around the world. Leaders are unconvinced about the future of the United States economy as their deficits are exceeding record highs. The following analysis will discuss the history of the world reserve currency, how the U.S. dollar became the controlling currency and the benefits the U.S. has experienced as a result of having the controlling currency. Presenting analysis will also discuss the cause of mounting concerns over the future of the United States as well as the effects if the dollar was to lose its status as the world’s reserve currency. Finally, alternatives for the dollar will be evaluated as well as what the United States can do to maintain the standing of the dollar. History of World Reserve Currency During the 1800’s and the first half of the 1900’s the British Pound served as the foremost world reserve currency. Due to WWII Great Britain accrued a high amount of debt and lost its status as the world reserve currency. As the British Pound was decreasing...
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...2011, according to the International Monetary Fund (IMF). The provinces in the coastal regions of China tend to be more industrialized, while regions in the hinterland are less developed. As China's economic importance has grown, so has attention to the structure and health of the economy. As the Chinese economy is internationalized, so does the standardized economic forecast officially launched in China by Purchasing Managers Index in 2005. Most economic growth of China is created from Special Economic Zones of the People's Republic of China. The construction of the road system of Beijing–Shanghai Expressway was completed and opened to public usage in early 2000 for access of transportation on logistics, travel and tourism around the most populous and densely economic active areas of Chinese Mainland II. Population A. Total The demographics of the People's Republic of China are identified by a large population with a relatively small youth division, which is partially a result of the China's one-child policy. Nowadays, China's population is over 1.3 billion, the largest of any country in the world. According to the 2010 census, 91.51% of the population was of the Han Chinese, and 8.49% were minorities. China's population growth rate is only 0.47%, ranking 156th in the world. China conducted its sixth national population census on 1 November 2010 1. Growth rates: 0.44% (2014 est.) 2....
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...the south, the Gobi desert to the north and inhospitable deserts and high plateaus to the west. The Yellow river in China is said to be the source of the first Chinese culture and civilization. There are many different cultures located in China such as the Yangshao culture, Hongshan culture, and Yunnan culture. Ancient Chinese agrarian religion revolved around the worship of natural forces and spirits who controlled the elements and presided over rivers, fields and mountains. Shaman known as wu acted as intermediaries between the human and spiritual worlds and performed rites to insure good weather and harvests and keep evil spirits at bay. Even though China is regarded officially as an atheist state today, it has had an officially recognized religion since 2356 B.C., when science, religion, mythology and government were all linked together. Taoism and Confucianism began to take shape around the 5th and 6th centuries B.C. but evolved from religions that had been around in China for at least a thousand years before that. China has always been known for having intelligent minds and creating and producing some of the best products. They introduced the world to woven silk, fireworks, playing cards, pasta, fishing reels, whiskey, poison gas, wood block printing, lacquer, compass, and the wheelbarrow. The Chinese mathematicians...
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...The Transformation of China from an Emerging Economy to a Global Powerhouse James R. Barth, Gerard Caprio Jr., and Triphon Phumiwasana Abstract Throughout the past three decades of fast growth, China has undergone tremendous structural changes in its economy and financial system. This chapter examines China’s evolving financial landscape so as to assess whether it can catch up with or even drive economic growth. China has achieved remarkable growth over the past quarter of a century despite a relatively inefficient financial system. Just as the public sector around the world has not proved to be an efficient manager of enterprises, it also has not been an efficient manager of banks. A solution that would seem to work in theory would be to grow the private sector’s role in the banking system, using banks that operate on market principles as a way to continually starve inefficient enterprises of credit, while supplying credit to the productive enterprises. Finding a way to make this work in practice will require both finesse and good fortune on a scale commensurate with China’s growing importance in the world economy. Keywords Bank Á Banking sector Á Financial market Á Big Four Á GDP Á Economic growth Á Financial system Á Trade Á Renminbi Á Exchange rate Á India Á Foreign exchange reserve Á Non-performing loan 1 Introduction China has captured the attention of the world with its unprecedented growth for such a big country during the past 30 years. At an average rate of 9...
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... Introduction Global prosperity, as we know it, has resulted from the rapid integration of global trade and capital flows springing from the inter-linkage of diverse economies worldwide. However, the evolution of the world economy has occurred so rapidly that it has outpaced its regulators (Schwab, 2012). The International Monetary System, in accordance with its mayor international currencies, has been faced with a myriad of challenges. In this era of free global trade, the present dollar-based system is being forced to change (Schwab, 2012). With much speculation and evolving ideals, the most plausible solution has been the multipolar currency system based on the euro, dollar, and RMB (Schwab, 2012). In order to ensure a crisis-proof economic system, however, some economists believe this tripolar system must be backed by a Central Bank, an improvement in monetary regulations, and perhaps an induction of gold as a hedge and safe-haven asset. Introducing a World Central Bank within a three-currency monetary union: would this lead to greater stabilization and coordination of Macroeconomic Policies among countries? Some countries such as Germany have expressed interest in researching new alternatives to the existing rate regime, considering that neither of the two poles (fixed or flexible) are completely appropriate (Belke, Bernoth and Fichtner, 2011). According to Belke et al, the best and most suitable system would be one with only a few big currency areas, interconnected...
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