In July 2005, China dropped its decade-long currency peg to the U.S. dollar, and instead repegged to a basket of currencies. China reevaluated the yuan to make the currency effectively 2.1 percent stronger against the U.S. dollar. In mid-2007, China again took steps to let its currency trade more freely against the dollar and to cool its sizzling economy and contain its soaring trade surplus with the United States. In the reversal, however, in mid-2015, China devalued its currency by 4.4 percent against the dollar to stem the deceleration of its economy. Under the new currency system, China has not yet surrendered control of the currency. It has moved away from a fixed exchange rate but not all the way to a flexible or free-floating one. In the long run, the impact of China’s currency manipulation on trade and on the world financial system could be huge. Based on what you have learned from this chapter, what would be the impacts on the world’s economy, if China and other Asian countries truly allowed their currencies to float, or, instead, kept holding them within narrow bands against the dollar?
In July 2005, China dropped its decade-long currency peg to the U.S. dollar, and instead repegged to a basket of currencies. China reevaluated the yuan to make the currency effectively 2.1 percent stronger against the U.S. dollar. In mid-2007, China again took steps to let its currency trade more freely against the dollar and to cool its sizzling economy and contain its soaring trade surplus with the United States. In the reversal, however, in mid-2015, China devalued its currency by 4.4 percent against the dollar to stem the deceleration of its economy. Under the new currency system, China has not yet surrendered control of the currency. It has moved away from a fixed exchange rate but not all the way to a flexible or free-floating one. In the long run, the impact of China’s currency manipulation on trade and on the world financial system could be huge. Based on what you have learned from this chapter, what would be the impacts on the world’s economy, if China and other Asian countries truly allowed their currencies to float, or, instead, kept holding them within narrow bands against the dollar?
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