Professional Documents
Culture Documents
Assignment 2
Chinas Renminbi: Our Currency, Your
Problem?
Submitted to
Prof. Rezina Sultana
By
Group A5
Ajay Pratap Singh
Aman Pal
Kartik Saruparia
Manjeet Rathod
Sreeparna Das
Section: A
PGP 2014-16
On
08.12.2014
II.
US Government
According to the US government, Chinese Currency
exchange rate was not as per the market forces and it
should have appreciated over the years when the
Chinese economy had been growing at the rate of 9%
over the previous decade. China undervalues its
currency to maintain the value of its currency at an
artificially low value, which makes its exports cheaper
that have forced the American factories towards
bankruptcies.
China
Chinese government rejects USs allegations by
mentioning that its currency is not significantly
undervalued as pegging helps maintain a stable
economy. Also, as per China, capital inflow from China is
only partly responsible for large trade and budget deficit
of US and thus US should focus on the weakness of its
economy instead of treating China as scapegoat. Being
a sovereign country, China has all the rights to choose
its exchange rate policy.
Q.4
Differentials in Inflation
If a countrys inflation is increasing then the purchasing power
of its currency reduces at both domestic and global level. This
in turn translates in the increased exchange rate of the
currency, as relatively it depreciates with respect to the
trading partner countrys currency. The currency in such cases
would depreciate until its purchasing power matches with the
currency of the trading partner country.
II.
Current-Account Deficits
A deficit in the current account shows the country is spending
more on foreign trade than it is earning, and that it is
borrowing capital from foreign sources to make up the deficit.
In other words, the country requires more foreign currency
than it receives through sales of exports, and it supplies more
of its own currency than foreigners demand for its products.
The excess demand for foreign currency lowers the country's
exchange rate until domestic goods and services are cheap
enough for foreigners, and foreign assets are too expensive to
generate sales for domestic interests.