The Chinese government devalued the Yuan in August 2015 by nearly 4% to counter poor economic indicators, including slowing exports, falling stock markets, and capital outflows. This was the largest one-day devaluation in 20 years and reflected China's attempt to balance goals of a stronger currency to curb capital flight versus a weaker one to boost exports. While critics accused China of currency manipulation, the IMF approved of the move as China transitions to a more market-driven exchange rate for the Yuan.
China kills three birds with “yuan” stone QNB Group
The Chinese government unexpectedly devalued the yuan by 1.9% against the US dollar to address three key issues: a slowing economy, falling stock markets, and meeting criteria for the yuan to be included in the IMF's reserve currency basket. The devaluation is aimed at boosting exports and the stock market by making Chinese goods and companies relatively cheaper. While the initial 1.9% devaluation may not significantly impact the economy, further flexibility in setting the exchange rate daily could lead to additional yuan weakening to provide the needed economic stimulus. However, long-term economic challenges around debt and transition remain.
The document discusses whether the Chinese yuan will become the next global reserve currency. It outlines factors that influence a currency being used as a reserve, including the size and importance of the economy, open financial markets, and macroeconomic policies. Currently the US dollar dominates as a reserve currency, but its position is weakening due to rising debt and China's increasing influence. The yuan is moving towards becoming a reserve through currency swaps and trade deals settled in yuan. However, the yuan faces challenges to becoming a reserve like lack of convertibility and large bond markets. China needs reforms to make the yuan freely floating and develop its financial systems before the yuan can replace the dollar as the dominant global reserve currency.
Much of the population is totally misinformed on the issue of the exchange rate as an economic policy instrument. This is an issue that people think it's not important unless when they decide to travel abroad. People need to understand that the exchange rate is a key factor of a national development project given that it interferes favorably or unfavorably on the competitiveness of exports and expenditure on imports, in forward or reverse of the domestic industry, the rise or fall of inflation rates, the increase or decrease of the country's production costs and the rise or fall of international reserves, among other factors. A stable exchange rate can lead to a prolonged period of economic growth, while an unstable exchange rate is able to reverse any growth process as what is currently happening in Brazil.
BAFI 3200- International Finance- Group 2- Team LChau Vuong Minh
This document analyzes and forecasts the exchange rate between the USD and AUD from 1996 to 2015 using quantitative and qualitative analysis.
Quantitatively, regression models are used to analyze the relationship between macroeconomic factors and the exchange rate change. The final model found money supply, unemployment rate differential, and time series to be the most significant factors.
Qualitatively, recent economic events are expected to cause the AUD to depreciate against the USD in December. These include expected interest rate cuts by the RBA, an interest rate hike by the Fed, higher Australian GDP growth, a rising US trade deficit, and falling iron ore prices.
Based on the quantitative and qualitative analysis, the forecast exchange rate on December
The document discusses the foreign exchange market. It begins by defining the forex market as a decentralized global market for trading currencies without a central exchange. It operates 24/7 globally with a daily trading volume of $5 trillion, making it the largest financial market in the world. Commercial banks and their clients participate in the forex market, trading currency pairs like EUR/USD. The document also discusses exchange rates, factors that influence rates like balance of payments and monetary supply, and the roles that central banks and commercial banks play in the forex market.
To focus on the study of examine “U.S. financial crisis and its impact on Ind...Rahul Dabhi
The document discusses different currencies used globally and factors that influence currency exchange rates such as interest rates and economic opportunities in a country. It defines a financial crisis as a rapid fall in the value of one or more currencies, more likely in emerging markets with high foreign currency borrowing. A financial crisis involves investors withdrawing money from savings accounts, an economic downturn, and stock market crashes. Government responses to speculative attacks on a currency include devaluing the exchange rate, intervening in foreign exchange markets, and raising interest rates. The chapter reviews literature on the impact of the global financial crisis on India's GDP and the relative resilience of the Indian economy.
Non-Japan Asia currencies, led by led by the CNY, IDR and THB, have staged a mini comeback in the past ten days. This is broadly in line with my expectations that precedent suggested that NJA currencies would stabilise and possibly appreciate gradually after a month of relative weakness. NJA central banks are seemingly comfortable with this modest currency rebound…for now.
Olivier Desbarres: Chinese remninbi squaring the circleOlivier Desbarres
China’s exchange rate policy is one of many significant uncertainties or “known-unknowns” for 2017 (as it arguably was in 2016 and prior years).
The market’s focus is still very much on the rise in USD-CNY but Chinese policy-makers are keen to emphasise the importance of the Renminbi’s performance against a basket of currencies – the CNY Nominal Effective Exchange Rate (NEER). This comes as no surprise.
The monthly pace of CNY NEER appreciation or depreciation has rarely exceeded 3% in the past seven years, suggesting that policy-makers have sought to control the Renminbi’s rate of change.
Large (and well documented) capital outflows from China have been the main source of Renminbi pressure but China’s current account surplus-to-GDP ratio has also edged lower to around 2.5% due to a rising deficit in the services balance. This perhaps dents the argument that the Renminbi is still materially undervalued.
Moreover, despite the Renminbi’s gain in competitiveness in the past year, China’s trade surplus has somewhat counter-intuitively shrunk, not increased. This may be due to price effects outweighing demand-effects (for exports) and still strong credit-fuelled Chinese imports.
In response to quarterly capital outflows of between $100bn and $200bn since late 2015, the PBoC intervened in the FX market to the tune of about $280bn in January-November.
This strong commitment likely reflects the perceived economic and geopolitical benefits of limiting the Renminbi’s depreciation.
Near-term, I think the PBoC may continue to see some value in a broadly stable Renminbi or only very modest CNY NEER depreciation. If capital outflows re-accelerate this would likely require the introduction of further capital controls and aggressive FX intervention. This is certainly an option in the short-run.
If capital outflows stabilise or recede, the PBoC may be able to slow or even stop FX intervention. This is not a totally unfeasible scenario if global yields stabilise and a slightly stronger CNY attracts capital back into China or if capital controls take greater effect.
In the more unlikely scenario whereby China experiences capital inflows, which last happened in Q1 2014, I would expect the PBoC to have limited appetite for rapid and/or sustained Renminbi appreciation and instead use this opportunity to rebuild FX reserves.
China kills three birds with “yuan” stone QNB Group
The Chinese government unexpectedly devalued the yuan by 1.9% against the US dollar to address three key issues: a slowing economy, falling stock markets, and meeting criteria for the yuan to be included in the IMF's reserve currency basket. The devaluation is aimed at boosting exports and the stock market by making Chinese goods and companies relatively cheaper. While the initial 1.9% devaluation may not significantly impact the economy, further flexibility in setting the exchange rate daily could lead to additional yuan weakening to provide the needed economic stimulus. However, long-term economic challenges around debt and transition remain.
The document discusses whether the Chinese yuan will become the next global reserve currency. It outlines factors that influence a currency being used as a reserve, including the size and importance of the economy, open financial markets, and macroeconomic policies. Currently the US dollar dominates as a reserve currency, but its position is weakening due to rising debt and China's increasing influence. The yuan is moving towards becoming a reserve through currency swaps and trade deals settled in yuan. However, the yuan faces challenges to becoming a reserve like lack of convertibility and large bond markets. China needs reforms to make the yuan freely floating and develop its financial systems before the yuan can replace the dollar as the dominant global reserve currency.
Much of the population is totally misinformed on the issue of the exchange rate as an economic policy instrument. This is an issue that people think it's not important unless when they decide to travel abroad. People need to understand that the exchange rate is a key factor of a national development project given that it interferes favorably or unfavorably on the competitiveness of exports and expenditure on imports, in forward or reverse of the domestic industry, the rise or fall of inflation rates, the increase or decrease of the country's production costs and the rise or fall of international reserves, among other factors. A stable exchange rate can lead to a prolonged period of economic growth, while an unstable exchange rate is able to reverse any growth process as what is currently happening in Brazil.
BAFI 3200- International Finance- Group 2- Team LChau Vuong Minh
This document analyzes and forecasts the exchange rate between the USD and AUD from 1996 to 2015 using quantitative and qualitative analysis.
Quantitatively, regression models are used to analyze the relationship between macroeconomic factors and the exchange rate change. The final model found money supply, unemployment rate differential, and time series to be the most significant factors.
Qualitatively, recent economic events are expected to cause the AUD to depreciate against the USD in December. These include expected interest rate cuts by the RBA, an interest rate hike by the Fed, higher Australian GDP growth, a rising US trade deficit, and falling iron ore prices.
Based on the quantitative and qualitative analysis, the forecast exchange rate on December
The document discusses the foreign exchange market. It begins by defining the forex market as a decentralized global market for trading currencies without a central exchange. It operates 24/7 globally with a daily trading volume of $5 trillion, making it the largest financial market in the world. Commercial banks and their clients participate in the forex market, trading currency pairs like EUR/USD. The document also discusses exchange rates, factors that influence rates like balance of payments and monetary supply, and the roles that central banks and commercial banks play in the forex market.
To focus on the study of examine “U.S. financial crisis and its impact on Ind...Rahul Dabhi
The document discusses different currencies used globally and factors that influence currency exchange rates such as interest rates and economic opportunities in a country. It defines a financial crisis as a rapid fall in the value of one or more currencies, more likely in emerging markets with high foreign currency borrowing. A financial crisis involves investors withdrawing money from savings accounts, an economic downturn, and stock market crashes. Government responses to speculative attacks on a currency include devaluing the exchange rate, intervening in foreign exchange markets, and raising interest rates. The chapter reviews literature on the impact of the global financial crisis on India's GDP and the relative resilience of the Indian economy.
Non-Japan Asia currencies, led by led by the CNY, IDR and THB, have staged a mini comeback in the past ten days. This is broadly in line with my expectations that precedent suggested that NJA currencies would stabilise and possibly appreciate gradually after a month of relative weakness. NJA central banks are seemingly comfortable with this modest currency rebound…for now.
Olivier Desbarres: Chinese remninbi squaring the circleOlivier Desbarres
China’s exchange rate policy is one of many significant uncertainties or “known-unknowns” for 2017 (as it arguably was in 2016 and prior years).
The market’s focus is still very much on the rise in USD-CNY but Chinese policy-makers are keen to emphasise the importance of the Renminbi’s performance against a basket of currencies – the CNY Nominal Effective Exchange Rate (NEER). This comes as no surprise.
The monthly pace of CNY NEER appreciation or depreciation has rarely exceeded 3% in the past seven years, suggesting that policy-makers have sought to control the Renminbi’s rate of change.
Large (and well documented) capital outflows from China have been the main source of Renminbi pressure but China’s current account surplus-to-GDP ratio has also edged lower to around 2.5% due to a rising deficit in the services balance. This perhaps dents the argument that the Renminbi is still materially undervalued.
Moreover, despite the Renminbi’s gain in competitiveness in the past year, China’s trade surplus has somewhat counter-intuitively shrunk, not increased. This may be due to price effects outweighing demand-effects (for exports) and still strong credit-fuelled Chinese imports.
In response to quarterly capital outflows of between $100bn and $200bn since late 2015, the PBoC intervened in the FX market to the tune of about $280bn in January-November.
This strong commitment likely reflects the perceived economic and geopolitical benefits of limiting the Renminbi’s depreciation.
Near-term, I think the PBoC may continue to see some value in a broadly stable Renminbi or only very modest CNY NEER depreciation. If capital outflows re-accelerate this would likely require the introduction of further capital controls and aggressive FX intervention. This is certainly an option in the short-run.
If capital outflows stabilise or recede, the PBoC may be able to slow or even stop FX intervention. This is not a totally unfeasible scenario if global yields stabilise and a slightly stronger CNY attracts capital back into China or if capital controls take greater effect.
In the more unlikely scenario whereby China experiences capital inflows, which last happened in Q1 2014, I would expect the PBoC to have limited appetite for rapid and/or sustained Renminbi appreciation and instead use this opportunity to rebuild FX reserves.
BUS 550 -_finance_final_project_group_1_rev_5lowedmond
California University of Management and Technology (CALMAT) MBA
BUS550 Finance
Final Project - Analyze the exchange rate risk of India Rupee and the risk vis-à-vis the U.S.
The Japanese yen has strengthened against other currencies like the US dollar due to Japan's large trade surplus, low domestic interest rates, and diversification away from the dollar. While a strong yen hurts Japanese exports in the short term, long-term trends like Japan's aging population and low economic growth relative to other countries suggest the yen will remain strong. Recent fluctuations have had a devastating impact on Japanese firms, but analysts expect the yen to strengthen further in the near future before recovering slightly by year's end.
Currency pegging involves fixing a currency's exchange rate to another currency or basket of currencies to facilitate trade and investment between countries. It also helps control inflation by providing predictable exchange rates for importers and exporters. While pegging promotes trade and investment, removes speculation, and is necessary for developing economies, it is not permanently fixed and causes monetary dependence. Floating exchange rates allow currency values to fluctuate based on foreign exchange markets. This provides insulation from other economies but also greater volatility and uncertainty for traders. Managed floats involve central bank intervention to influence exchange rates rather than letting them be determined entirely by markets.
The Japanese yen has strengthened to a 15-year high against the US dollar due to net capital inflows into Japan. The yen's strengthening is caused by Japan's trade surplus, low returns elsewhere, and diversification away from the dollar and euro. A stronger yen hurts Japan's export-driven economy by making Japanese goods less price competitive overseas. The only hope for Japan to weaken the yen is faster economic improvement abroad compared to within Japan.
The document discusses exchange rate regimes and how governments can manage exchange rates. There are two main types of exchange rate regimes: fixed rates, where a government keeps a currency at a target rate against another, and floating rates, where the market determines the exchange rate. To maintain a fixed rate, governments can intervene in currency markets, adjust interest rates, and impose exchange controls. While fixed rates provide certainty, they require giving up monetary policy flexibility and independence.
- The foreign exchange market involves the trading of one country's currency for another. It determines exchange rates through supply and demand.
- In the long run, exchange rates are determined by theories like purchasing power parity which says exchange rates will adjust over time to reflect differences in inflation. The law of one price also applies to keep identical goods priced the same globally.
- In the short run, exchange rates are the price of one country's bank deposits in terms of another's. The current and expected future exchange rates determine demand for each country's deposits and set the equilibrium exchange rate where supply meets demand.
This document discusses different types of exchange rate systems and how exchange rates are determined. It outlines fixed exchange rates where a government sets the rate, floating/flexible rates where market forces determine the rate, and managed rates where a government intervenes to influence the rate. It then provides details on how demand and supply impact exchange rate equilibrium and can cause currency appreciation or depreciation under flexible systems.
8 key factors that affect foreign exchange ratesannadesoza123
The exchange rate is defined as "the rate at which one country's currency may be converted into another." It may fluctuate daily with the changing market forces of supply and demand of currencies from one country to another.
The document discusses factors that affect exchange rates, including inflation, interest rates, income levels, and government control. It analyzes these factors using a multiple regression model with exchange rate as the dependent variable and the other factors as independent variables. The results show that inflation, interest rates, and income levels significantly influence exchange rates, while government control is insignificant. Understanding what drives exchange rate movement is important for organizations involved in international business.
Long Run Impact of Exchange Rate on Nigeria’s Industrial Outputiosrjce
While many scholars have carried out a lot of research on the impact of exchange rate volatility and
price shocks on economic growth, this study departs from previous studies and seeks to provide suggestions for
Nigerian policy makers on the attainment of an ideal exchange rate necessary to boost industrialization and
industrial output. The economies of all the countries of the world are linked directly or indirectly through asset
and goods markets. This linkage is made possible through trade and foreign exchange. The price of foreign
currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the
growth trajectory of all countries of the world. The consequences of substantial misalignments of exchange rates
can lead to output contraction and extensive economic hardship. These therefore, bring up the issue of an ideal
exchange rate necessary for the achievement of a set of diverse objectives - economic growth, containment of
inflation and maintenance of external competiveness. This study employed the use of the ordinary least square
technique to examine the impact of exchange rate stability on industry output in Nigeria using annual time
series data from 1980 to 2013. The result of the study showed that domestic capital, foreign direct investment,
population growth rate, and real exchange rate were significant determinants of industrial output. The changes
in external balance and inflation were of little or no consequences to industrial output. Based on the findings,
the researcher recommended that conscious efforts should be made by government to fine-tune the various
macroeconomic variables in order to provide an enabling environment that stimulates industrial output and
eventual economic growth.
This document summarizes a study that modeled volatility and daily exchange rate movement between the Nigerian naira and US dollar from January 2001 to May 2019. The results found that exchange rate volatility is positively related to returns and persistent over time. It was also discovered that negative news produces more volatility than positive news of equal magnitude, indicating an asymmetric or "leverage" effect. The researchers recommend that the Central Bank of Nigeria intervene more actively to reduce excess volatility between the currencies.
Emerging Market Crisis May Derail Global Economic RecoveryQNB Group
The emerging market crisis triggered by the Federal Reserve's announcement of tapering quantitative easing has led to significant capital flight from emerging markets and a weakening of their currencies. If the Fed begins tapering in September as planned, it could further undermine emerging market growth and reduce global export demand, negatively impacting the still weak recoveries in the US and Europe. Ultimately, premature quantitative easing tapering risks lowering growth in both the US and globally, jeopardizing the economic recovery according to QNB Group. Emerging market central banks have tried to defend their currencies but with limited success, and the crisis is resembling the Asian financial crisis of the late 1990s. A major slowdown in emerging market growth would inevitably damp
The value of a currency is determined by supply and demand factors. If demand for a country's currency is high from travelers, governments, and investors, its value increases. However, demand decreases if a country has a weak economy, high inflation, political instability, or high national debt. These factors can lower the value of a currency. Additionally, currency values fluctuate compared to each other in foreign exchange markets based on relative demand for different currencies.
The objective of this paper is to test the exchange rate dynamics by measuring the speed of adjustment of prices. In this overshooting model, we assume price stickiness (gradual adjustment). If the prices are adjusted instantaneously, we will have the monetarist view; otherwise, the overshooting one, due to slow adjustment of prices and consequently, it affects all the other variables and slowly the exchange rate. We outline, here, an approach of testing the dynamic models of exchange rate determination. This approach is based upon the idea that it is difficult to measure directly the process by which market participants revise their expectations about current and future money supplies. On the other hand, it is possible to make indirect inferences about these expectations through a time series analysis of related financial and real prices. Empirical tests of the above exchange rate dynamics are taking place for four different exchange rates ($/€, $/£, C$/$, and ¥/$). Theoretical discussion and empirical evidence have emphasized the impact of gradual adjustment and “overshooting” that it is taking place. Only for the $/€ exchange rate the monetarist model is correct.
This paper develops an equilibrium model of the determination of exchange rates and prices of goods. Changes in relative prices due to supply or demand shifts induce changes in exchange rates and deviations from purchasing power parity. These changes may create a correlation between the exchange rate and the terms of trade, but this correlation cannot be exploited by governments to affect the terms of trade through foreign exchange market operations. The model emphasizes the role of relative price changes due to real disturbances and how these changes affect both exchange rates and the terms of trade through shifts in supply and demand. Government interventions in foreign exchange markets cannot influence exchange rates if the relationship between exchange rates and terms of trade is due to shifts in real supply and demand for domestic and foreign goods.
Reduction in Reserve Requirement Ratio in ChinaHe Jiang
The document discusses China's reduction in its reserve requirement ratio (RRR) to boost its slowing economy. It provides background on RRR and its role in China's monetary policy toolkit. While RRR cuts could increase inflation, speculation, and currency depreciation, current data shows inflation is low and economic growth has slowed, making RRR cuts necessary. The cuts will increase money supply and lending to stimulate the economy. Stock markets may rise in the long run due to improved economic expectations. RRR cuts are an effective policy given China's current economic conditions.
Developing Trends - Central Banks - The Good the Bad and the UglyNikhil Mohan
This document discusses central banks and their performance. It summarizes that central banks aim to target inflation and maximize output. The US central bank has performed best among developed economies, while Israel's central bank has performed best among emerging markets from 2002-2011. Countries with interest rates lower than what the Taylor Rule prescribes have experienced little inflation cost and stronger growth. Inflation was a concern in early-mid 2011, but growth, or the lack thereof, will be a bigger concern for emerging markets going forward, suggesting interest rate cuts may be needed.
The document discusses exchange rate determination and the factors that influence exchange rates. It begins by explaining how exchange rates are measured in terms of currency appreciation and depreciation. It then discusses how the equilibrium exchange rate is determined by the demand and supply of currencies. Finally, it examines several factors that can affect the equilibrium exchange rate, including relative inflation rates, interest rates, income levels, government controls, expectations, and the interaction of trade and financial factors.
Mhetre Amogasiddha Mallikarjun is seeking a position where he can contribute to realizing an organization's vision. He has a Bachelor's degree in Mechanical Engineering and over 1 year of work experience as a Graduate Engineer Trainee at Johnson Controls Inc. in project coordination and management. Some of his notable contributions include suggesting design changes to reduce costs and coordinating the supply of materials to ensure on-time commissioning. He is proficient in Pro ENGINEER, AutoCAD, MATLAB, ANSYS and MS Excel.
BUS 550 -_finance_final_project_group_1_rev_5lowedmond
California University of Management and Technology (CALMAT) MBA
BUS550 Finance
Final Project - Analyze the exchange rate risk of India Rupee and the risk vis-à-vis the U.S.
The Japanese yen has strengthened against other currencies like the US dollar due to Japan's large trade surplus, low domestic interest rates, and diversification away from the dollar. While a strong yen hurts Japanese exports in the short term, long-term trends like Japan's aging population and low economic growth relative to other countries suggest the yen will remain strong. Recent fluctuations have had a devastating impact on Japanese firms, but analysts expect the yen to strengthen further in the near future before recovering slightly by year's end.
Currency pegging involves fixing a currency's exchange rate to another currency or basket of currencies to facilitate trade and investment between countries. It also helps control inflation by providing predictable exchange rates for importers and exporters. While pegging promotes trade and investment, removes speculation, and is necessary for developing economies, it is not permanently fixed and causes monetary dependence. Floating exchange rates allow currency values to fluctuate based on foreign exchange markets. This provides insulation from other economies but also greater volatility and uncertainty for traders. Managed floats involve central bank intervention to influence exchange rates rather than letting them be determined entirely by markets.
The Japanese yen has strengthened to a 15-year high against the US dollar due to net capital inflows into Japan. The yen's strengthening is caused by Japan's trade surplus, low returns elsewhere, and diversification away from the dollar and euro. A stronger yen hurts Japan's export-driven economy by making Japanese goods less price competitive overseas. The only hope for Japan to weaken the yen is faster economic improvement abroad compared to within Japan.
The document discusses exchange rate regimes and how governments can manage exchange rates. There are two main types of exchange rate regimes: fixed rates, where a government keeps a currency at a target rate against another, and floating rates, where the market determines the exchange rate. To maintain a fixed rate, governments can intervene in currency markets, adjust interest rates, and impose exchange controls. While fixed rates provide certainty, they require giving up monetary policy flexibility and independence.
- The foreign exchange market involves the trading of one country's currency for another. It determines exchange rates through supply and demand.
- In the long run, exchange rates are determined by theories like purchasing power parity which says exchange rates will adjust over time to reflect differences in inflation. The law of one price also applies to keep identical goods priced the same globally.
- In the short run, exchange rates are the price of one country's bank deposits in terms of another's. The current and expected future exchange rates determine demand for each country's deposits and set the equilibrium exchange rate where supply meets demand.
This document discusses different types of exchange rate systems and how exchange rates are determined. It outlines fixed exchange rates where a government sets the rate, floating/flexible rates where market forces determine the rate, and managed rates where a government intervenes to influence the rate. It then provides details on how demand and supply impact exchange rate equilibrium and can cause currency appreciation or depreciation under flexible systems.
8 key factors that affect foreign exchange ratesannadesoza123
The exchange rate is defined as "the rate at which one country's currency may be converted into another." It may fluctuate daily with the changing market forces of supply and demand of currencies from one country to another.
The document discusses factors that affect exchange rates, including inflation, interest rates, income levels, and government control. It analyzes these factors using a multiple regression model with exchange rate as the dependent variable and the other factors as independent variables. The results show that inflation, interest rates, and income levels significantly influence exchange rates, while government control is insignificant. Understanding what drives exchange rate movement is important for organizations involved in international business.
Long Run Impact of Exchange Rate on Nigeria’s Industrial Outputiosrjce
While many scholars have carried out a lot of research on the impact of exchange rate volatility and
price shocks on economic growth, this study departs from previous studies and seeks to provide suggestions for
Nigerian policy makers on the attainment of an ideal exchange rate necessary to boost industrialization and
industrial output. The economies of all the countries of the world are linked directly or indirectly through asset
and goods markets. This linkage is made possible through trade and foreign exchange. The price of foreign
currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the
growth trajectory of all countries of the world. The consequences of substantial misalignments of exchange rates
can lead to output contraction and extensive economic hardship. These therefore, bring up the issue of an ideal
exchange rate necessary for the achievement of a set of diverse objectives - economic growth, containment of
inflation and maintenance of external competiveness. This study employed the use of the ordinary least square
technique to examine the impact of exchange rate stability on industry output in Nigeria using annual time
series data from 1980 to 2013. The result of the study showed that domestic capital, foreign direct investment,
population growth rate, and real exchange rate were significant determinants of industrial output. The changes
in external balance and inflation were of little or no consequences to industrial output. Based on the findings,
the researcher recommended that conscious efforts should be made by government to fine-tune the various
macroeconomic variables in order to provide an enabling environment that stimulates industrial output and
eventual economic growth.
This document summarizes a study that modeled volatility and daily exchange rate movement between the Nigerian naira and US dollar from January 2001 to May 2019. The results found that exchange rate volatility is positively related to returns and persistent over time. It was also discovered that negative news produces more volatility than positive news of equal magnitude, indicating an asymmetric or "leverage" effect. The researchers recommend that the Central Bank of Nigeria intervene more actively to reduce excess volatility between the currencies.
Emerging Market Crisis May Derail Global Economic RecoveryQNB Group
The emerging market crisis triggered by the Federal Reserve's announcement of tapering quantitative easing has led to significant capital flight from emerging markets and a weakening of their currencies. If the Fed begins tapering in September as planned, it could further undermine emerging market growth and reduce global export demand, negatively impacting the still weak recoveries in the US and Europe. Ultimately, premature quantitative easing tapering risks lowering growth in both the US and globally, jeopardizing the economic recovery according to QNB Group. Emerging market central banks have tried to defend their currencies but with limited success, and the crisis is resembling the Asian financial crisis of the late 1990s. A major slowdown in emerging market growth would inevitably damp
The value of a currency is determined by supply and demand factors. If demand for a country's currency is high from travelers, governments, and investors, its value increases. However, demand decreases if a country has a weak economy, high inflation, political instability, or high national debt. These factors can lower the value of a currency. Additionally, currency values fluctuate compared to each other in foreign exchange markets based on relative demand for different currencies.
The objective of this paper is to test the exchange rate dynamics by measuring the speed of adjustment of prices. In this overshooting model, we assume price stickiness (gradual adjustment). If the prices are adjusted instantaneously, we will have the monetarist view; otherwise, the overshooting one, due to slow adjustment of prices and consequently, it affects all the other variables and slowly the exchange rate. We outline, here, an approach of testing the dynamic models of exchange rate determination. This approach is based upon the idea that it is difficult to measure directly the process by which market participants revise their expectations about current and future money supplies. On the other hand, it is possible to make indirect inferences about these expectations through a time series analysis of related financial and real prices. Empirical tests of the above exchange rate dynamics are taking place for four different exchange rates ($/€, $/£, C$/$, and ¥/$). Theoretical discussion and empirical evidence have emphasized the impact of gradual adjustment and “overshooting” that it is taking place. Only for the $/€ exchange rate the monetarist model is correct.
This paper develops an equilibrium model of the determination of exchange rates and prices of goods. Changes in relative prices due to supply or demand shifts induce changes in exchange rates and deviations from purchasing power parity. These changes may create a correlation between the exchange rate and the terms of trade, but this correlation cannot be exploited by governments to affect the terms of trade through foreign exchange market operations. The model emphasizes the role of relative price changes due to real disturbances and how these changes affect both exchange rates and the terms of trade through shifts in supply and demand. Government interventions in foreign exchange markets cannot influence exchange rates if the relationship between exchange rates and terms of trade is due to shifts in real supply and demand for domestic and foreign goods.
Reduction in Reserve Requirement Ratio in ChinaHe Jiang
The document discusses China's reduction in its reserve requirement ratio (RRR) to boost its slowing economy. It provides background on RRR and its role in China's monetary policy toolkit. While RRR cuts could increase inflation, speculation, and currency depreciation, current data shows inflation is low and economic growth has slowed, making RRR cuts necessary. The cuts will increase money supply and lending to stimulate the economy. Stock markets may rise in the long run due to improved economic expectations. RRR cuts are an effective policy given China's current economic conditions.
Developing Trends - Central Banks - The Good the Bad and the UglyNikhil Mohan
This document discusses central banks and their performance. It summarizes that central banks aim to target inflation and maximize output. The US central bank has performed best among developed economies, while Israel's central bank has performed best among emerging markets from 2002-2011. Countries with interest rates lower than what the Taylor Rule prescribes have experienced little inflation cost and stronger growth. Inflation was a concern in early-mid 2011, but growth, or the lack thereof, will be a bigger concern for emerging markets going forward, suggesting interest rate cuts may be needed.
The document discusses exchange rate determination and the factors that influence exchange rates. It begins by explaining how exchange rates are measured in terms of currency appreciation and depreciation. It then discusses how the equilibrium exchange rate is determined by the demand and supply of currencies. Finally, it examines several factors that can affect the equilibrium exchange rate, including relative inflation rates, interest rates, income levels, government controls, expectations, and the interaction of trade and financial factors.
Mhetre Amogasiddha Mallikarjun is seeking a position where he can contribute to realizing an organization's vision. He has a Bachelor's degree in Mechanical Engineering and over 1 year of work experience as a Graduate Engineer Trainee at Johnson Controls Inc. in project coordination and management. Some of his notable contributions include suggesting design changes to reduce costs and coordinating the supply of materials to ensure on-time commissioning. He is proficient in Pro ENGINEER, AutoCAD, MATLAB, ANSYS and MS Excel.
The document discusses several safety issues with pedestrian crossings including a lack of safe waiting areas, drivers disregarding traffic lights, and open drains. It then lists recommendations from an audit such as repairing and installing proper lighting on footpaths, removing obstructions, putting cables underground, and setting up a complaint system. It concludes by saying pedestrians need to lobby for more inclusive spaces and that city planners should prioritize pedestrian safety.
This document discusses strategic cost management for mortgage lenders and consumer finance companies. It outlines four critical elements to delivering sustainable cost reduction: 1) Developing a strong foundation by defining a cost reduction story and framework, 2) Creating breathing space by implementing quick wins, 3) Looking at the system as a whole using both top-down and bottom-up approaches, and 4) Embedding a cost conscious culture. The document provides details on each element and emphasizes the importance of a comprehensive, long-term approach to cost management through cultural and strategic change.
Este documento presenta información sobre la hipertensión arterial. Define la hipertensión arterial y discute factores de riesgo, datos epidemiológicos, evaluación clínica, estudios de laboratorio, clasificaciones, tratamientos actuales y más. Explica diferentes tipos como la hipertensión sistólica aislada y la hipertensión refractaria. También cubre prevalencia, requisitos para tratamiento farmacológico, combinaciones sinérgicas de fármacos y bibliografía.
The document discusses technical analysis, which uses historical market data like stock prices and volumes to identify trends and predict future market moves. It describes several technical analysis techniques including bar and line charts, moving averages, volume and momentum indicators. The key idea of technical analysis is that market trends persist due to shifts in supply and demand, which can be observed through patterns in historical price data. Technical analysts use tools like charts and indicators to identify emerging trends and make trading decisions.
Este documento descreve os serviços de uma consultoria de gestão da inovação e gerenciamento de projetos chamada innovaGP. A empresa oferece serviços como gestão estratégica da inovação, viabilização de projetos, gerenciamento de projetos e treinamentos. O fundador da empresa tem experiência em gestão de projetos e gestão da inovação.
O mercado romano era uma parte importante da economia durante a República e o Império Romano. A sociedade romana era segmentada em torno das atividades comerciais, com membros da ordem equestre envolvidos em negócios, plebeus e libertos mantendo lojas nos mercados, e escravos realizando a maior parte do trabalho pesado e também sendo objeto de transações comerciais.
Getting Started in Beekeeping, presented at the Missouri Livestock Symposium on December 3, 2016 by Grant Gillard, a beekeeper from Jackson, Missouri and Past President of the Missouri State Beekeeping Association. www.grantgillard.weebly.com
Trabalho apresentado ao curso MBA em Gerenciamento de Projetos, Pós-Graduação lato sensu, da Fundação Getulio Vargas como requisito parcial para a obtenção do Grau de Especialista em Gerenciamento de Projetos.
This document summarizes the seven main chakras of the body according to Hindu tradition. It describes the location and associations of each chakra, beginning with Mooladhara at the base of the spine relating to grounding and obstacles, and ending with Sahasrara at the crown of the head relating to total harmony and connecting to life force energy. The purpose is to bring awareness to these energy centers and how realizing their roles can help achieve inner peace and well-being.
The Chinese Yuan Foreign Exchange Rate Policy- The Historical Background, The...Chenxuan Ye
The document provides a summary of China's recent devaluation of the Yuan currency. It discusses the historical background of China's managed floating exchange rate regime and reviews literature on the topic. The document analyzes justifications for the recent 1.9% devaluation, including easing monetary policy and responding to capital outflows. Potential implications discussed include limited boost to exports, downward pressure on other Asian currencies, and structural changes benefitting some Chinese firms over others. In conclusion, the document argues the devaluation was aimed at reforms rather than currency wars or exports, moving China toward a market-based exchange rate.
Case Study: The Chinese Yuan-Beware of Dragon’s tailkhalid ekram
This document summarizes a presentation on the Chinese yuan currency. It introduces China's large population and status as the world's second largest economy. It then discusses the history of the yuan, including its peg to the US dollar from 1994 to 2005. In 2005, China switched to pegging the yuan to a basket of currencies and allowing it to float more freely. Since then, the yuan has appreciated by about 24% against the dollar. The document also notes political pressures on China to revalue its currency to reduce trade surpluses with countries like the US.
This document is a 9-page essay discussing China's exchange rate policy. It begins by outlining China's exchange rate history from 1994 to 2012. It then discusses the debate around China maintaining an "undervalued" currency, with critics claiming it subsidizes exports and benefits China at the expense of other countries. However, the essay finds several studies that refute these criticisms. It concludes that China will likely continue gradually increasing currency flexibility to balance domestic and international factors, without major impacts to its current account balance.
Discuss the effect of China-'s government control of the value and exc.docxwviola
Discuss the effect of China\'s government control of the value and exchange rate of the Yuan.
Solution
Answer
Most developed countries allow the market to set the value of their currency. China has taken a different approach. Until 2005, the government kept its currency pegged to the dollar, with the central bank buying or selling currency as necessary to ensure that one dollar was worth around 8.2 yuan. Since 2005, the currency has been pegged to a basket of world currencies, and the exchange rate has changed over time, but China still actively manages the currency\'s value on a day-to-day basis.
Currency devaluation is like a nationwide sale. A currency devaluation helps countries sell more exports, boosting the economy. There are thousands of businesses in China that sell goods and services to customers in foreign countries. Their goods are generally priced in China\'s yuan. So if the yuan becomes less valuable relative to other currencies, Chinese imports become cheaper in other countries. Chinese devaluation is also bad for other countries exports.
During 2008 financial crisis, Chinese government believed to intervene in the market to make its currency artificially cheap. A cheap yuan gave Chinese exporters an advantage in world markets.
Currently the Chinese economy is in the midst of an economic slowdown and has suffered from stock market turmoil which is giving pressure on the yuan.
China is slowly moving toward flexible exchange rates. The IMF re-evaluates the currency composition of its SDR basket every five years. In the long run, China hopes to emulate developed economies with fully flexible exchange rates. The yuan will be included in the basket of currencies used by the IMF (reserve currency) in 2016.
But many believes that the yuan’s value will continue to be closely monitored and managed by the PBOC.
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Background of Yuan depreciation and central parity reformyun zhang
The document discusses the background of China's recent reform of the RMB central parity rate and the reasons for RMB depreciation. It notes that the central parity rate was previously controlled by the central bank but has now been reformed to reference the closing exchange rate and other market factors. The reform and depreciation of the RMB were done to ease economic downward pressure, boost exports, and meet IMF requirements to include the RMB in the SDR basket of currencies by demonstrating a more market-determined exchange rate.
The document discusses the increasing role and importance of the Chinese yuan (renminbi) in the global monetary system. It outlines the history and development of the yuan currency in China. It then analyzes the yuan's growing status as an international currency, comparing it to the role currently played by the US dollar and euro. The document predicts that the yuan will likely become one of the world's major currencies within the next decade as China's economy continues to grow in size and influence. Chinese authorities are taking steps to increase the yuan's use in international trade and as a reserve currency held by other nations and institutions.
The document discusses China's policy of currency devaluation and its impacts. It notes that since 2003, China has devalued its currency to gain a competitive advantage in exports. This has boosted Chinese exports while hurting exports of other countries. The devaluation also allows China to run large trade surpluses. However, constant large trade surpluses through devaluation are not a sustainable long-term strategy and China should restructure its economy and let market forces determine its currency value more.
The document discusses the relationship between the US and Chinese economies and currencies. It notes that the US economy depends heavily on foreign capital, particularly Chinese renminbi. China holds over $1 trillion in US treasury bonds and US debt totaled over $18 trillion as of September 2014. However, the relationship is complex as the two countries are also major trading partners and competitors. Maintaining a stable economic relationship is important for both countries but also challenging given the different economic systems and priorities.
13Brief Literature Review DraftStudent NameP.docxdrennanmicah
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Brief Literature Review Draft
Student Name
Professor Name
Course Title
Date
Literature Review
Introduction
Report released by CNN explicitly explains the subject of currency manipulation in a diverse way. According to Censky, (2010), currency manipulation is the act of changing the currency value against other currencies instead of leaving it free to fluctuate following the dynamics in the global market Censky, (2010), currency manipulation has a significant impact on the local economy. It is defined by the country’s currency value against the international standards and the exchange rate used.
Katz, (2015) argues that, a country that is actively involved in exports and import has higher changes of facing the economic currency exchange challenges that can prompt manipulation of currency. As outlined in the CNN reports, China is perceived to be on the forefront for currency manipulation. This is report comes as a result of currency valuation report where the Chinese Yuan dropped significantly in 2016 following the US government action on the country’s export surge (Censky, 2010).
Currency manipulation history
The history of currency manipulation streams as early as 1998 when the Chinese government rolled its export trade into the United States following the unification of US and Chinese policies. The first significant of U.S. trade and current account deficits in the post-war era occured in 1971. They were caused, in part, by a series of competitive devaluations by major trading partners in Japan and Europe in the 1960s.
In 2005, the Chinese government reformed its exchange rate system policies. It announced that the RMB would no longer be pegged, and that the RMB exchange rate would become “adjustable based on market supply and demand with reference to exchange rate movements of currencies in a basket” containing various currencies of major developed countries.
From 1947 to 1971, the United States operated under a fixed exchange rate system based on the gold standard, which committed the United States to exchange dollars for gold at $35 per ounce under the Bretton-Woods system of fixed exchange rates. On August 15, 1971 President Nixon suspended the convertibility of gold and imposed a 10% surcharge on all imports (Stewart and Drake 2009).
According to Staiger, & Sykes (2008), the Nixon administration strategized measures aimed at pushing Japan and the members of the European Community to eliminate and revalue the trade boundaries that initially existed. The elimination was a strategic measure to remove those countries with fixative track records and additional contributions to common defense projects by the U.S. allies. Before the end on 1971, the European countries and Japan stood on the agreement to revalue forcing the Nixon to suspend the important surcharge. The following year were significantly impacted with numerous transformations leading to the elimination of Bretton-Woods and gold standard resulting to elevation.
How successful is chinas currency manipulationEd Dolan
China manipulates its currency by buying US dollars with yuan, driving down the yuan's value. This benefits Chinese exporters. However, China's higher inflation compared to the US means its real exchange rate is appreciating more rapidly than the nominal rate, undermining the competitiveness of Chinese exports. While China aims to slow the yuan's appreciation, any attempt would likely cause more inflation and faster real appreciation still. So China's currency manipulation is not fully successful in maintaining competitiveness long-term.
Is it the right time to introduce new global reserve currencyRatan Kumar
The document discusses potential replacements for the US dollar as the global reserve currency. It analyzes the euro, Chinese yuan, Japanese yen, and Special Drawing Rights (SDR) as options. However, it concludes that no single currency is currently suitable and able to replace the dollar due to issues like weak economies in Europe, China's capital controls, and the SDR's composition and allocation methods. A transition to a new stable global reserve currency would require considerable time and changes in other nations' economic policies and financial systems.
Impact of foreign exchange on the revenue and profit of selected IT companiesRaghav Upadhyay
This document discusses currency fluctuations and their impact on businesses. It begins with an introduction to currency fluctuations, explaining what they are and some of the key factors that cause currencies to rise and fall in value relative to one another. These include economic data, interest rates, news/market sentiments, and the current state of a country's economy. The document then discusses specific examples of how currency fluctuations have impacted economies globally. It also outlines some of the risks currency value fluctuations pose to businesses, such as increased operating costs and difficulty predicting profits/losses. Finally, it discusses strategies businesses can employ to help minimize risks from currency value changes.
The trilemma as a framework for understanding China and India’s recent moneta...Hiram Ruiz
This document summarizes and analyzes recent monetary policy choices by China and India through the framework of the "trilemma" of international finance. It discusses China and India's use of capital controls to maintain exchange rate stability and monetary sovereignty while restricting capital flows. The document analyzes the development of each country's domestic financial markets and the role of government ownership in banking. It examines how China and India have approached exchange rate policy and positioned themselves within the trilemma framework over time based on quantitative data and historical context.
The document discusses the possibility of the Chinese yuan playing a larger role in the global financial system and potentially being added to the basket of currencies that determines the value of Special Drawing Rights. While some see this as a sign of the yuan's growing importance, others note that full convertibility and less intervention in the currency's value would be necessary before it could become a major global reserve currency to rival the US dollar. Experts disagree on how soon China may allow the yuan to float more freely but most believe the country's currency policy is still oriented around export-led growth for the time being.
Is Quantitative Easing Beneficial To The Global EconomyVeena Mohandas
Quantitative easing is a monetary policy used by central banks to stimulate their economy by increasing the money supply. The central bank creates money to buy government bonds from banks in exchange for cash, increasing bank reserves. This is intended to improve credit flow. However, excessive money creation can cause currency devaluation and inflation. While quantitative easing aims to boost the domestic economy, it has international impacts like currency fluctuations, trade imbalances, rising commodity prices, and challenges for emerging markets and debtors.
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply. The central bank creates money to buy government bonds and other assets from banks. This increases bank reserves and is intended to boost lending. However, QE can negatively impact emerging markets through currency depreciation and higher commodity prices. It may also increase inflation and international debt burdens. While QE stimulates the domestic economy, it has mixed effects globally.
YUAN BECOMES WORLD’S FIFTH RESERVE CURRENCY, CAN BITCOIN BE SIXTH?Steven Rhyner
On 1st October 2016, the Chinese Yuan {became|ended up being|came to be} the {world|globe}'s 5th {reserve|book} {currency|money}. {What|Exactly what|Just what} does it {take to|require to} {become one|turn into one} {and|as well as|and also} can Bitcoin {get there|arrive}?
The Renminbi (RMB) was first issued in 1949 and China instituted a dual currency system in 1978 with the RMB only usable domestically. In the late 1980s and 1990s, China worked to make the RMB more convertible on current accounts. From 1994 to 2005, China pegged the informal value of the RMB to the US dollar. In the 2000s, the US pressured China to appreciate the RMB to decrease Chinese exports and preserve US manufacturing jobs. China resisted due to concerns over affecting exports and jobs. RMB appreciation could impact China's economy, exports, investment, and production while benefiting consumers and potentially creating new jobs through innovation and industrial upgrading.
This section examines the relationship between the Japanese yen and the US dollar over a 12-month period. It finds that the yen appreciated against the dollar, reaching a 14-year high in November 2009, but declined at various points when the Japanese government intervened verbally or through monetary policy to devalue the yen. Key factors that influenced the currency fluctuations included differences in price inflation and interest rates between the two economies, as well as shifting market psychology. The yen's appreciation has economic implications for Japan, such as making exports less competitive and posing challenges for monetary policy effectiveness.
A presentation for the 15th Asia TEFL International Conference-64th TEFLIN International Conference, held in Yogyakarta, July 2017
Business degree courses taught in English is one of the greatest growth areas in education. Because English medium programs are being taught around the world, even less developed countries, off the beaten path, such as Cambodia, are receiving international and exchange students. Delivering business courses in an English medium presents a number of issues, for example, who will be the teachers? The three options explored in this presentation are: 1. Local professors with subject knowledge, but questionable ability to teach in English, 2. Very expensive foreign professors who may not know how to scale their language and workload to meet the needs of a second language audience, or 3. ESL teachers who know how to communicate well with and motivate L2 students, but who may not be subject experts.
An inspirational presentation at Blue Mountain, Torrens University, Suzhou, China Campus
By Antonio Graceffo, PhD, China-MBA, Diplom Licentiate TESOL
Antonio draws parallels from his own life to those of his literary heroes Edgar Rice Burroughs, Sir Richard Francis Burton, Jack London, Louis L’Amour, and Ernest Hemingway. These men all lived incredible lives and were unusually prolific.
China's One Belt One Road Initiative is one of the largest projects ever undertaken by humans. It includes roads, ports, fiber optic cables, and pipelines, running from Singapore, North through ASEAN, to China, Xinjiang, Central Asia, Pakistan, and Iran. Along the route, the project brings
economic growth, human development, and the spread of the Chinese language. In Cambodia, The Belt and Road is also bringing about a resurgence of Chinese identity among Cambodia’s ethnic Chinese community. This presentation looks at the history of Chinese education in Cambodia and how it has dramatically increased, due to the Belt and Road Initiative.
中国特色经济发展(中国1978 以后经济改革开放)
Economic Development with Chinese Characteristics a presentation at the Finland business association, Shanghai China by Antonio Graceffo, PhD, China-MBA (安东尼博士)
School of Economics Shanghai University (上海大学经济学院)
This presentation traces China’s economic history, beginning with the formation of the People’s Republic of China (PRC) in 1949, through the economic liberalization under Deng Xiaoping, which began in 1978, through the 1990s, and the beginning of state support for entrepreneurs. Dr. Graceffo explains the function of state owned enterprises, as well as China’s investment in ASEAN and the Belt and Road Initiative (One Belt One Road).
Watch the presentation on Youtube
https://youtu.be/I0l3rt5FBxk
British Author, George Orwell (1903-1950) was a socialist and adventurer, British Empire policeman in Burma and a volunteer in the Spanish Civil War. He lived among the poor in London and Paris, as well as among coal miners in Wigan. He was a socialist, but one who wrote commercially successful works. His greatest contribution to both literature and political science was 1984 which has been used by both the left and the right to prove the evils of the opposing political view.
America was born in a revolution, tempered in a civil war and passed its adolescence in the Jazz Age. F. Scott Fitzgerald was author of that age, and all of the famous notables who moved within his sphere were characters he created. The stock market crash in 1929 signaled the end of the feast. The Great Depression was an adult tragedy which had no place for America’s eternal youth. Finding no place in this world, Scott chose to move on to the next one. In 1940, he moved on leaving us with four and a half novels and 178 short stories. Of all the books written about the jazz age, Fitzgerald’s The Great Gatsby is the one which is universally regarded as the best and most accurate depiction of the era. Many scholars believe The Great Gatsby is the Greatest American novel.
On November 8, 2016 Donald Trump was elected president of the United States. His election sparked protests across the United States and demonstrated how divided the nation is on President Trump. He assumed office on January 20th, 2017, with an approval rating of only 48%, one of the lowest of any incoming president in history. He banned travel to the US from 7 Muslim countries, insulted the leaders of Germany, Mexico, and Australia, pulled America out of the Transpacific Partnership, threatened protectionist tariffs and taxes on foreign imports, and he packed his cabinet with pro-Taiwan and anti-China pundits.
War hero, big game hunter, fisherman, and arguably the greatest American writer of all time. Hemingway gave the world 10 novels, 10 collections of short stories, 5 works of non-fiction, and 21 movies based on his writing.
In return, he was awarded Pulitzer Prize for Fiction (1953) and the Nobel Prize in Literature (1954).
Some say that his greatest literary work was his life. He became the character, Ernest Hemingway. He believed boxing, war, hunting, and bull fighting were the bravest things a man could do.
China is ASEAN’s largest trading partner and a growing economic force in the Asia-Pacific region. Thousands of miles away, America has a new president, Donald Trump, who is threatening to enact anti-China trade policies and to remove the United States from the Transpacific Partnership. This presentation will explore China’s importance in Asia, as well as how changes in Trump-China trade policies will impact ASEAN.
Donald Trump has packed his cabinet with advisors who are pro-Taiwan and anti-China. Most notably,
Trump's Anti-China Triumvirate:
Robert Lighthizer - US trade representative
Wilbur Ross - Secretary of Commerce
Peter Navarro - Newly created White House National Trade Council
He says he will withdraw from the TPP and levy a 45% tariff on Chinese imports. This report will explore the impact of these actions on US small businesses.
The US is China’s number one export partner. For most of the last eight years, China has been the largest holder of US debt. The two countries are closely linked economically. As the world’s number one and number two economies, trade between these giants effects the entre globe. Donald Trump is accusing China of currency manipulation and unfair trade, vowing to remove the US from the Transpacific Partnership and to levy a 45% tariff on Chinese products. He is also threatening a 35% tax on US companies who export jobs to China. This presentation will explore these concepts in detail as well as look at the possible outcome of a trade war between the US and China.
中国是非洲最大的贸易màoyi伙伴。上海大学经济学院安东尼博士中国对外投资汉语报告Chinese language presentation on China outbound investment in Africa. Shanghai University, Economics Department, Antonio Graceffo, PhD
Jack London (1876-1916) was an American author best known for his adventure novels including The Call of the Wild and White Fang. He lived a life of adventure himself as a sailor, war correspondent, hobo, and gold prospector in Alaska which influenced his writing. London wrote prolifically, publishing over 50 books and 1,000 articles in just 16 years before his early death at age 40, possibly from alcohol and drug abuse or suicide. The speaker discusses London's life experiences and influence on his writing style, as well as his own adventures that parallel those of the famous author.
This document provides an overview of state-owned enterprises (SOEs) in China. It discusses that while private sector employment has grown, SOEs still account for a significant percentage of China's economy and workforce. SOEs dominate important industries like energy, transportation, and banking. However, SOEs have also been criticized for inefficiencies and unfair advantages over private firms. In recent decades, China has implemented reforms to make SOEs more competitive and profitable, while still maintaining state control and ownership over large, strategically important companies.
An English language translation of part of Brooklyn Monk, Antonio Graceffo’s PhD dissertation for Shanghai University of Sport. His PhD topic is “Chinese traditional wrestling compared with western wresting.”
1. 1
Recap of the Chinese RMB Devaluation
By Antonio Graceffo (安东尼)
Introduction
In August 2015, the Central Bank of China chose to devalue the national currency, the
Yuan, by nearly 4%. The currency of the world’s second largest economy dropping so
abruptly sent reverberation which were felt in China and around the world. This paper,
consisting of information available through early September 2015, will first explain
the RMB devaluation. Second, it will illustrate how the exchange rate for the RMB is
set by the Chinese government. Next, it will analyze the former peg rate used by the
Chinese government in the days before the Chinese economy was liberalized and
more exposed to market forces. Then, the paper will go on to explain the currency
conundrum, China’s competing interests in maintaining both a stronger and a weaker
currency. Next t be addressed will be, how the drop in China’s currency affects the
Yuan becoming an international currency. This is followed by an analysis of the poor
economic indicators leading to the drop in the Yuan. Afterwards, the paper will
discuss both the realized impact and predicted impact the Yuan drop will have on the
Chinese, Hong Kong, and then foreign economies. Finally, the political reaction to the
Yuan devaluation will be discussed.
The Yuan Devaluation
For the last decade, while China grew to become the world’s second largest economy,
China’s national currency, called the Yuan (FX symbol, CNY - Chinese Yuan
Renminbi) has been steadily gaining in value. (Wei) But, in a surprise move, on
Tuesday, August 11, 2015, the Chinese government began devaluating the Yuan,
leading to a 2% drop in by the close of trading. This was the largest devaluation since
the 1994 beginning of China’s modern-exchange rate system. (GOUGH and
BRADSHER) In fact, it was the largest one-day decline in the Yuan ever. (Mullaney)
The devaluation continued for two more days, through Wednesday and Thursday,
resulting in a total devaluation of 4.4%. (GOUGH and BRADSHER)
To prevent the Yuan from sliding further, Chinese state-owned banks sold off dollars,
decreasing their reserve of foreign currency. (SWEENEY and JIANXIN)
“’Apparently, the central bank does not want the Yuan to run out of control," said a
trader at a European bank in Shanghai.’’” (SWEENEY and JIANXIN) The Central
bank used the dual techniques of selling US Dollars and buying Yuan on currency
markets to stem capital outflows from China. (Cendrowski)
Analysts speculated about how to interpret the move. Some believe that the
significance goes far beyond a one-off correction. “In a recent webcast, Tom Orlik,
the Chief Asia Economist at Bloomberg Intelligence, said this shift “wasn’t just about
2. 2
devaluation of the currency, this was also about a shift in the way China manages its
exchange rate.” (Bloomberg Professional service)
How the Yuan exchange rate is set
The value of the world's seven most actively traded currencies, called the major
currencies: Euro, British Pound, Australian Dollar, Canadian Dollar, Japanese Yen,
and Swiss Franc are generally expressed in terms of their value against the US Dollar.
The exchange rates for the majors are market-determined, based on the value of daily
trading in the world’s foreign exchange markets. (Evans)
The value of the Yuan, however, is not strictly market determined, but effectively
controlled by the Chinese government. Largely ignoring daily trading activity, a
reference rate is set each morning by the People’s Bank of China (PBoC), the Central
Bank of the People’s Republic of China. (Fast FT) Using this fixing rate as a mid
point, the central government only allows the Yuan to move plus or minus 2% above
or below. (Wei) The Yuan is closely tied to the Dollar because China manages the
exchange rate against the US dollar. When the US dollar rises against other major
currencies so does the Yuan. (Cendrowski)
In recent years, the PBoC has progressively allowed the Yuan to fluctuate more and
more, over the course of the trading day. (Fast FT) Part of the fallout of the August
devaluations is that the Chinese government stated that they will permit more market
information to influence the value of the Yuan. The fixing point, for example, will be
influenced by how the Yuan closes in the previous day’s trading. (Wei) This should
allow the currency to rise or fall more rapidly. (Inman, Farrer and Ryan)
The recent drop in the Yuan will create more competition for US exporters, as Chinese
export goods will become cheaper. Some experts warn that opening the Yuan to
market forces could weaken the Yuan, putting even more exchange rate pressure on
the US, as Chinese goods would continue to become cheaper. (GOUGH and
BRADSHER)
Currency Peg
Governments can maintain artificial peg rates by closely monitoring international
currency exchange markets. They then use foreign currency reserves to purchase their
own currency when the rate drops below a desired point. Conversely, they can sell off
currency when the rate goes too high. (Ding) Prior to 2005, the Central Bank of China
employed this type of strategy to keep the Yuan tied to a government peg rate. When
the peg was removed in 2005, the RMB was immediately revaluated, going from the
peg rate of 8.27 to 8.11 against the dollar. (Ding)
From 2005 through the August, 2015 devaluation, the RMB was no longer pegged to
3. 3
this government peg rate. Instead, the currency has been able to float in a more market
driven scenario, with the value floating within a narrow range of 0.5% around the
central parity published by the People's Bank of China. (Ding) After the devaluation
in August, the Chinese government said that they will liberalize the exchange even
further, allowing market forces greater influence on the value of the Yuan.
Currency conundrum
In the valuation of the Yuan, the Chinese government is confronted with two
conflicting goals. On the one hand, a cheaper Yuan would help Chinese exporters, as
this would make Chinese products cheaper overseas. But on the other hand, opening
the Yuan to market forces could weaken the currency, which could lead to capital
outflows. By artificially buoying the Yuan China can help curtail capital flight which
would weaken the economy as a whole. (Cendrowski) Other concerns for the Chinese
government include avoiding a trade war with the US which could happen if the
Central Bank of China chooses to dramatically weaken the Yuan. This could lead to
other countries devaluating their currencies to keep the price of their exports
competitive with Chinese made products.
Another potential issue for China is that the central government wants to increase the
use of the Yuan as an international exchange currency. In fact, China has been
campaigning to have the IMF recognize the Yuan as a reserve currency. (Cendrowski)
The IMF maintains a basket of reserve currencies, called Special Drawing Rights, the
composition of which it reviews every five years. The most recent review took place
in 2010. (Imf.org) With the next review planned for 2015, the Yuan will have to meet
several requirements if it is to be included. The Yuan must be proven to be "freely
usable," or widely used to make international payments and widely traded in foreign
exchange markets. (Lange) “Freely usable” in IMF terms means that the currency is
widely accepted in international trade. (Imf.org) China must demonstrate that the
Yuan is strong, stabile, convertible, and that the value is market determined. But at the
same time, China wants to maintain a competitive edge on exports. Some of these
goals could best be achieved through a strong Yuan and others through a weak Yuan.
These conflicting benefits of both a stronger and weaker currency present China with
a currency conundrum.
Impact on RMB becoming international currency
For years, voices in the American Congress have accused China of artificially
depressing the Yuan to gain a competitive edge on exports. (GOUGH and
BRADSHER) Consequently, the devaluation was called an unfair tactic by U.S.
lawmakers, who saw it as an attempt to save China’s slowing economy. (SWEENEY
and JIANXIN) The US has typically been one of the biggest critics of The People’s
Bank of China’s policy of keeping the Yuan pegged to the dollar. This resulted in an
4. 4
artificially low Yuan, giving Chinese exports a price advantage. Since the peg was
removed in 2005, the Yuan has steadily appreciated. (Fast FT)
Ironically, although it was tight government control that allowed the move to happen,
some saw the Yuan devaluation as a sign that China is moving toward a more market
driven economy. (Wildau) And, as China moves to a more market driven exchange
rate, devaluation is an unavoidable consequence. (Wildau) Adjusting the Yuan
exchange rate is not necessarily the first step in causing an exchange rate war. (Wildau)
It may simply be the effect of normal market forces.
The International Monetary Fund (IMF) has commended China’s devaluation of the
Yuan. (Herman) The IMF “told Beijing Friday it wants the yuan to float freely within
three years, applauded the Chinese central bank on this basis.” (Smith) China’s
subsequent decision to allow a wider band of exchange rates for the Yuan will
increase the flexibility of the Yuan, which is a necessary step if China wishes to
integrate its currency into global financial markets. (Herman)
Beijing has been trying to get the Yuan added to the IMF basket of reserve currencies
known as Special Drawing Rights (SDR), which would make the Yuan a more
international currency. (SWEENEY and JIANXIN) “The SDR is a reserve of foreign
currency assets created by the IMF and the basket comprises four key international
currencies—the US Dollar, Euro, British Pound and Japanese Yen.” (Bhattacharya)
China has been pushing for the Yuan to be recognized as the fifth SDR currency.
(Mullaney) Such acceptance would be very prestigious for China. “This is ‘an elite
reserve currency status’” (Spence and Chan) If this happens, China’s global influence
would increase, as the Yuan would sit beside the world’s most important currencies.
(Wei)
Until now, “The IMF has said that "significant work" is needed for the Yuan to be
added to the group.” (Spence and Chan) “To win so-called Special Drawing Rights
status, China has to demonstrate that its currency is ‘freely usable,’ a conclusion the
IMF has refused to draw as recently as 2010.” (Mullaney) If the devaluation reflects a
change in how the Peoples Bank of China will manage the Yuan exchange rate,
namely, making it more market-driven, this may speak in favor of the Yuan being
included in the SDR. (Bhattacharya) Fortunately for Beijing, the IMF saw the
devaluation as positive. In addition to applauding the Yuan devaluation, the IMF has
said that “Beijing should aim for an effectively floating exchange rate within two to
three years.” (SWEENEY and JIANXIN)
Almost in compliance with the wishes of the IMF, the Chinese side has vowed to
allow the Yuan exchange rate to be more market-influenced. “’The PBoC said in its
statement that from today, the reference rate "should refer to the closing rate of the
Inter-bank foreign exchange market on the previous day’". (Fast FT)
5. 5
In addition to the prestige factor and increasing China’s influence, being included in
the SDR could have some very real economic benefits for China. For example, it
could make borrowing cheaper for Chinese businesses. It could also mean that raw
materials and commodities could be purchased in Yuan. But to get to that status more
of the world’s central banks will have to hold reserves in Yuan, which would help to
stabilize its value. (Mullaney)
Some saw the devaluation as a hybrid, fulfilling two goals with one move; both a
desperate act to control a falling economy and a move that might help convince the
IMF that the Yuan will now be more closely controlled by market forces. “’The PBOC
has astutely combined a move to weaken the Yuan with a shift to a more
market-determined exchange rate,’” said Eswar Prasad, a Cornell University professor
and former China head of the International Monetary Fund.” (Wei)
Poor economic indicators leading to the devaluation
Theories on why the Central Bank of China decided to devalue the Yuan are as varied
as the speculation about what the long-term impact will be. Some analysts such as
Albert Edwards, from Societe Generale, believe the answer is as simple as the fact
that the Yuan had been overvalued for years and that it needed to be corrected. (Inman,
Farrer and Ryan) The fact that the Yuan dropped after increased exposure to market
factors suggests that it was in fact overvalued, which is not the fault of the Chinese
government. (Smith) While some saw the devaluation of the Yuan as either proof of
the Chinese economy’s lack of stability, or the government’s inability to control it,
others see the move as not only justified, but as a positive indicator of the Chinese
government’s ability to transition to a market driven economy.
Another theory is that the Chinese authorities were concerned about a slowing
Chinese economy, leading to lower demand for commodities. (Mullaney) Over the
last year, consumption in China has slowed, as have China’s exports.
(Euromoney.com) “Exports fell by 8%, followed by a 6.6% drop in car sales and
slower business investment in July. Factory output for the month of July fell short of
the 6.6% projected growth, coming in instead at 6% year-on-year.” (Inman, Farrer and
Ryan) In addition to a downturn in the general economy, Chinese stocks have dropped
significantly over the last several months, with the Shanghai index losing 32% of its
value. (Yan) This forced the government to take steps to stabilize the economy, and a
currency devaluation is one such step. (Hu) Currency devaluation is a sign that the
government is concerned about the economy’s slow growth. (Wei)
Capital outflow is another worrying sign of a softening Chinese economy. China has
seen an outflow of $500 billion in foreign currency reserves. (Sender) These outflows
of foreign capital reserves have resulted in the spot rate for the Yuan trading weaker
than the rate set by the Central Bank of China. (Wildau) One of the factors
contributing to the foreign currency outflows has been the central bank selling dollars
6. 6
to artificially prop up the Yuan. (Wildau)
A weak property market, combined with lower domestic demand and exports have
caused the Chinese economy to register growth of only 7%, the lowest in six years. To
counter the economic slowdown the government is planning to offer tax breaks and
interest rate cuts to companies. (Wei) Some foreign analysts do not believe the
government’s reduced growth numbers, believing that the truth is even more grim.
“Some economists believe China's economy is already growing only half as fast as
official data shows, or even less.” (SWEENEY and JIANXIN)
While China closely monitors and controls the Yuan’s exchange rate to the Dollar, it
does not as tightly control the Yuan against other currencies, such as the Euro. A rising
Yuan, against the Dollar, has caused China’s July exports to the European Union to
become more expensive, and consequently fall by 12% compared to a year ago. (Wei)
Since the early economic reforms of Deng Xiaoping many in the West have held some
type of faith in this Communist government’s ability to manage the complexities of a
fast growing, modern economy, in terms of currency, debt, interest, and other aspects
of a market driven economy. (Smith) But what many outsiders forget, and what is
demonstrated by the drop in the Yuan, is that the current government has not even a
fraction of the control over the economy that they did in the days of the Command
Economy.. (Smith)
Those who favor free markets in China have been calling for less government
intervention over the years. But many of those same voices will be calling for more
government control now. The question is, do these reformist voices call for
free-markets in China only when it is good for their own bottom lines, but not for
China’s? (Smith) Rather than seeing the devaluation of the Yuan as grounds to panic
or criticize, one could also see the Yuan devaluation as a perfectly reasonable measure
for a government to take, given the current economic climate. “To encourage
growth—in this case by supporting export industries with a weaker currency—was a
good thing, not an occasion for markets to gyrate and politicians to erupt in protest.”
(Smith)
“William Dudley, head of the New York Federal Reserve, also said an adjustment to
the yuan was probably appropriate if the Chinese economy was weaker than the
authorities had expected.” (SWEENEY and JIANXIN) Economic data would suggest
that the Chinese economy has indeed been weaker than expected, in spite of
government spending on infrastructure projects. (GOUGH and BRADSHER) In fact,
a 24.1% increase in fiscal expenditure was not enough to pull economy out of its
downturn. (SWEENEY and JIANXIN) The state-owned banks are also being
pressured to lend money to companies for investment in factories. (GOUGH and
BRADSHER)
7. 7
Impact of the Yuan devaluation in China and Hong Kong
The effects of a currency devaluation in a country the size of China were immediately
felt at home and around the world.
For China, a drop in the Yuan means an increase in the price of servicing foreign debt,
calculated in US dollars. (MAKINEN and MASUNAGA) The manufacturing sector
would also be impacted by the higher cost of raw materials. Commodities, which are
priced in US Dollars immediately became more expensive for Chinese manufacturers,
who are some of the world’s largest importers of oil, copper, and coal. (Mullaney) In
fact, Chinese demand for raw materials is so significant that when the Chinese
economy first began slowing down, in summer 2014, oil prices dropped significantly,
from $110 per barrel to $50. Other commodities, such as nickel, copper and aluminum
dropped to lows not seen since 2009. (Inman, Farrer and Ryan)
Chinese airline stocks immediately dropped as investors estimated the negative effect
the higher fuel prices would have on the airlines’ profit margins. (Mullaney) Chinese
exports suddenly became cheaper for international consumers. However, those
exported products are now being made with more expensive commodities, which is
bad for Chinese manufacturers. (Mullaney) While a drop in the Yuan will make
Chinese products more competitive overseas, Bloomberg professional services
estimates that the higher cost of commodities and raw materials will have a net
negative impact on the Chinese economy. (Bloomberg Professional service)
One industry hit particularly hard by the devaluation would be the automotive
industry which is heavily dependent on importing metals. Less than 5 percent of
Chinese manufactured vehicles are sold overseas. Therefore, the less expensive Yuan
doesn’t help very much in gaining market share abroad. Meanwhile, a slowing
Chinese economy, combined with higher raw material costs are hurting domestic sales.
Auto sales in China experienced the first year-over-year drop in more than six years.
(Bloomberg Professional service) A weaker Yuan should depress auto sales even
further.
Back in 2000, it was predicted that a devaluation of the Yuan could have impact on
the Hong Kong Dollar. (WEI et al.) Now that the Yuan has dropped, it is unclear if
this cut was dramatic enough to impact the Hong Kong Dollar, but, the effects will be
felt in other areas of the Hong Kong economy. The Hong Kong retail sector could be
one of the hardest hit as Chinese tourists may reduce their shopping in the Specially
Administered Region. If retailers begin earning less, retail landlords may even be
forced to reduce rents. (Li) One sector which is benefitting from the Yuan
depreciation, however, is the Hong Kong money changers and banks, as Chinese from
the mainland scramble to move their cash out of the country. Hong Kong has always
been a doorway for cash from China, to the rest of the world. (Steinberg)
8. 8
Impact on the US
U.S. stocks fell, as did commodities which China is a significant importer of, such as
copper and oil. There was much speculation that the Yuan devaluation was a sign that
the Chinese economy had slowed and that demand for raw materials would remain
low. (MAKINEN and MASUNAGA) The US Dollar has been strong recently, making
US export products less attractive. A dropping Yuan makes the Dollar-priced products
even more expensive, which could result in decreased demand for US products. At the
same time, Chinese products have become even cheaper in the US which may hurt
domestic sales of US products. “Some analysts worry that China's devaluation may be
exporting deflation around the world.” (MAKINEN and MASUNAGA) Many reports
used the term “currency war” as there were fears that countries would begin
devaluating their currencies to compete with China. At the same time, manufacturers
in other countries may cut prices for goods sold overseas. The reduced income, plus
the cheaper products from China could drive prices down further, causing deflation.
The US dollar has already risen against the currencies of many of its trading partners,
such as Europe and Japan, which has increased the price of US goods overseas. The
drop in the Yuan will further exacerbate this problem. However, many US
manufacturers maintain factories and suppliers across Europe and in emerging
markets as a hedge. (Hu) So, there is both evidence in favor of, and against this Yuan
devaluation having a strong impact on the US economy. Of course, fears still remain
that this cut may be the first of many. A steadily dropping Yuan could make many of
these negative possibilities become realities.
Impact on the UK and Australia
Stock exchanges across both Asia, and Europe suffered losses of about 1%, with the
London FTSE 100 dropping almost 2% at one point, with a net loss of 1.4%. (Inman,
Farrer and Ryan) In addition to a 1.1pc drop in the FTSE, the slowdown in China is
expected to negatively impact mining companies and to put further pressure on British
stock indices. (Spence and Chan) Makers of luxury goods, as well as British retailers
dependent on Chinese consumers, have been hard hit, as a drop in the Yuan made
luxury imports more expensive. Burberry, for example, which has 65 locations in
China experienced a drop in share price of 4.4pc. (Spence and Chan)
China is a large commodity importer and the largest trading partner of Australia. The
drop in the Yuan makes raw materials from Australia more expensive, which may
negatively impact Australia in the form of reduced demand. (Kicklighter)
Immediately after the RMB devaluation The Australian Dollar plunged to a new
six-year low. (Powell) Analysts at Credit Suisse consider the Yuan to be 5 per cent to
10 per cent overvalued, and consequently predicted a continued devaluation, which
will put further pressure on the Australian Dollar, as well as US and Japanese exports.
(Powell) Asian stock exchanges declined, which could affect Australia indirectly, as
9. 9
many of the nations hit are Australia’s direct trading partners. (Powell) Analysts in
Australia also believe that a weaker Yuan will result in decreased demand for raw
materials, which will drive commodities prices down. (Powell)
Impact on Asia
While some experts believe that the devaluation of the Yuan will have very little net
impact on the US, they believe that it may have a great impact on other countries who
have China as a significant trading partner. The devaluation may force other countries,
such as Australia, Malaysia and South Korea to devalue their currency as well. While
the drop impacted those currencies immediately, a larger drop in the Yuan and the
consequent impact had already been predicted by some experts, prior to August. “an
analysis by Morgan Stanley in March predicted that a 15 percent drop in the yuan,
much larger than today's move, would cause a 5 percent to 7 percent drop in other
Asian currencies.” (Mullaney) This multiplier effect, if true, could be very worrying,
particularly if the Central Bank allows the Yuan to drop further.
Immediately after the Yuan devaluation, Commodities indexes declined to 2003 levels.
“Broad indexes of Asian stocks, excluding the Japan market, fell 2 percent, plunging
to a two-year low.” (Herman) Asian currencies were also hit. The Vietnamese national
currency, the Dong was hit especially hard. Vietnam, like China, is a country moving
form a centrally planned economy to a more market driven economy. And this
transition is reflected in the handling of exchange rates. The exchange rate for the
Vietnamese Dong is officially considered a managed floating rate, but is also similar
to a crawling peg. (Joiner) Vietnam also widened the exchange band for the Dong.
“Vietnam's move means ‘a currency war started almost immediately,’ said Marshall
Gittler, head of Global FX Strategy at IronFX, based in Cyprus.” (Herman) Two of
Southeast Asia’s most vulnerable currencies are the Malaysian Ringgit and Indonesian
Rupiah, both of which dropped significantly. (Hu) In fact, the Malaysian Ringgit
dropped by 4.2 percent within days of the Yuan drop, hitting the lowest point since
2009. (Patterson) At the same time, the Rupiah hit a 17-year low. The Australian and
New Zealand Dollars fell to six-year lows. (Herman) Other Southeast Asian
currencies, such as the Thai Baht hit lows not seen in years. (MAKINEN and
MASUNAGA)
Impact on India
Some experts believe that India is largely insulated from downturns in the Asian
markets and that India’s bull market will continue. “’The Rupee is relatively less
impacted in Asia as India is less export dependent,’ said Sue Trinh, head of Asia
foreign exchange strategy at RBC in Hong Kong. “A weaker Yuan is arguably
beneficial for India.’” (Shaaw and Goyal) Contrary to bullish predictions for India’s
stock market, the currency was also hit hard, dropping by one Rupee to the US dollar.
(Bhattacharya) Indian manufacturers, particularly in the textile and chemicals sectors
10. 10
will have trouble competing with a cheaper Yuan. (Ashworth) A further drop in the
Yuan would most likely result in a drop in price of Chinese exports to India.
(Bhattacharya) These cheaper exports will mostly be in the sectors of iron and steel,
bulk drugs and chemicals. (Bhattacharya)
India has long run a trade deficit with China. “India’s trade deficit with China has
almost doubled from $25 billion in 2008-09 to $50 billion in 2014-15.” China
accounts for 35% of India’s total trade deficit. (Bhattacharya) A cheaper Yuan will tip
these numbers further in China’s favor. Indian importers of Chinese goods may derive
a slight benefit from a cheaper Yuan. India imports all sorts of cheap products from
China, everything from shoes to components for the electronics sector. Because of the
Yuan, these imports just became a little cheaper. (BBC News) On the other side,
Indian textile manufacturers and chemical producers will now have a harder time
competing with Chinese manufacturers. (BBC News) India’s exports have been
steadily decreasing, if they decrease further, because of the Yuan, it could impact
India’s trade balance. (BBC News)
Impact on Africa
The Yuan drop was particularly felt in Africa. China is not only the largest trading
partner of many African countries, but, some African nations have even added the
Yuan to their foreign exchange system. (BBC News) “In 2011, the Nigerian Central
Bank pledged to store between 5%-10% of its foreign reserves in Yuan, alongside
Dollars and Euros.” (BBC News) Nigeria, and some other African countries,
attempted to use the Yuan to protect local currency from volatility in the petroleum
sector. (BBC News) Africa, like Australia, exports commodities to China, which will
now become more expensive for Chinese manufacturers. This could have a long-term
impact on African currencies. (BBC News)
Impact on Brazil
Moving on to South America, China is Brazil’s main trading partner. Normally, a drop
in the Yuan would be devastating for Brazil, but Brazil’s economy had already fallen
to lows not seen in 20 years. As a result, the impact from the drop in the Yuan is less
significant. (BBC News)
Potential future impact of the Yuan devaluation
There is much speculation about what the long term implications of the Yuan drop
could be. But, given that China is the world’s second largest economy, the effects will
be felt around the globe. (Kicklighter)
The Yuan devaluation is expected to have minimal impact on manufacturing in China.
Much of China’s manufacturing sector is engaged in assembling products for foreign
11. 11
companies. (Herman) Companies such as Apple and Nike have their products
assembled in China. (Pierson) The drop in the Yuan has very little effect on the price
that foreign companies pay to have their products assembled in China. (Herman)
Other analysts believe that in spite of the increased cost of raw materials, the
devaluation will have a net positive impact on China’s economy. “Analyst Gus
Faucher of PNC Bank said the change in currency exchange policy is likely to
‘support growth in China.’” (Herman) While the lower Yuan will make Chinese
products more competitive in foreign markets, it could cause political tensions with
the US. (GOUGH and BRADSHER) China's Ministry of Commerce confirmed the
net gain hypothesis, and that a cheaper Yuan will increase the attractiveness of
Chinese exports. (SWEENEY and JIANXIN) If the Yuan devaluation leads to a
decrease in Chinese demand for raw materials, mining companies across the globe
may see a drop in revenues, particularly in the metals sector. (Bloomberg Professional
service)
If the long term effect of the Yuan devaluation manifests itself in reduced production,
the loss of jobs could be a potential danger for China. Analysts, agree, however, that
this current devaluation shouldn’t have an impact on that scale. (MAKINEN and
MASUNAGA) Any drop in the Yuan reduces the income US companies derive from
sales in China, even if demand remains the same. Lower earnings could result in job
cuts. (USA TODAY) Obviously if there are further devaluations of the Yuan then the
impact on the US would be even greater.
Other experts have an opposite opinion, believing that further drops in the Chinese
economy would have minimal impact on the US economy. “Goldman Sachs analyst
David Kostin says a 1 percentage point drop in China's annual economic growth
would shave 0.06 percent off U.S. gross domestic product.” (Mullaney)
It was expected that the US Federal Reserve was poised to raise interest rates this Fall.
But the drop in the Yuan could potentially delay that increase. “The yield on
benchmark 10-year Treasuries fell more than 5 percent in U.S. trading today, moving
down to 2.12 percent.” This may keep US mortgage rates low. (Mullaney) A strong
U.S. dollar could hurt US exports, having a negative impact on the US economy
which would be worsened by a change in interest rates. (Wei) If the Fed fails to raise
interest rates, it may help certain type of mortgage holders, but not savers. (USA
TODAY)
A drop in the Chinese Yuan, could, cause a currency war in Asia, with other Asian
countries devaluating their currencies, in order to make their exports cheaper. Many
emerging market currencies have already depreciated against the dollar. (Hu) A
full-scale currency war would impact the average consumer in these countries who
would find his buying power reduced when he went to the market. (Herman) A
currency war, with emerging markets devaluating their currencies, could motivate
12. 12
investors to pull their money out of emerging markets and back into US Treasuries.
(Hu)
Some financial analysts also believe this could be the beginning of a deluge of cheap
goods from Asia, as other Southeast Asian countries devalue their currencies and
flood foreign markets with cheaper and cheaper products. (Inman, Farrer and Ryan)
A question which remains unanswered is whether this Yuan drop is a one-time fix for
the currency or part of an ongoing strategy of devaluation. Some currency analysts
have already downgraded their year-end forecast for the Yuan. BMI Finance Ltd in
Hong Kong, for example, has predicted a “year end rate of 6.83, down 10 percent
from previous forecasts.” (SWEENEY and JIANXIN) The two questions this leads to
are, will this devaluation really happen? And what will be the net impact on China and
the world?
Brooklyn Monk, Antonio Graceffo is a lecturer at Shanghai University. He is also a
PhD candidate at Shanghai University of sport, writing his dissertation on
comparative forms of Chinese wrestling, in Chinese, with expected graduation in June
of 2016. He is expected to graduate his China MBA, from Shanghai Jiaotong
University, in January, 2016. Antonio is the author of the books, “Warrior Odyssey”,
“The Monk from Brooklyn,” and several others. He has published hundreds of articles
in the fields of linguistics: second language acquisition, as well as martial arts.
Antonio is the host of the web TV show, “Martial Arts Odyssey,” which traces his
ongoing journey through Asia, learning martial arts in various countries.
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Web. 7 Sept. 2015.
The Monk from Brooklyn, the book which gave Antonio his name, and all of his
other books, the book available at amazon.com. His book, Warrior Odyssey,
chronicling Antonio Graceffo’s first six years in Asia, including stories about Khmer
and Vietnamese martial arts as well as the war in Burma and the Shan State Army, is
available at http://www.blackbeltmag.com/warrior_odyssey
See Antonio’s Destinations video series and find out about his column on
http://www.blackbeltmag.com
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http://www.youtube.com/user/brooklynmonk1
Brooklyn Monk in Asia Podcast (anti-travel humor)
http://brooklynmonk.podomatic.com
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