The Finance Manager And Global Considerations

Essay On How China Has Been Able To Devalue Their Currency

China’s recent move where it has devalued her currency (Yuan) has more to do with the dynamics of currency markets and not with a sudden urge of giving Chinese exporters an upper hand or an edge in the global market (Li, 2015). The question here is how has China been able to achieve to devalue her currency (Yuan) over the past few year? While assessing this scenario, Tejada (2015) states categorically that China through her central bank pegs its Yuan to the dollar. By doing this, the government of the People’s Republic of China manages to maintain the value of her currency within a given range or with a tight control.

The other strategy that has been employed by the Chinese Central Bank in this process of devaluing her currency is by setting up on daily basis, a rate at which the Chinese Yuan is going to be traded or exchanged with the dollar. Once this has been done, domestic traders in China are encouraged to exchange the Chinese Yuan with the US Dollar within a band of 2% down or up (Tejada, 2015) This trend goes on in the next day whereby the Chinese Central Bank ignores the market forces and sets up another exchange rate of the Chinese Yuan with the US Dollar. By doing this, the Chinese Central Bank manages to keep control or to devalue her currency. In fact, this is why the Chinese Yuan is relatively cheaper in the market more so in comparison with the US Dollar and other world currencies whose value is always determined by the market forces across that are witnessed across the globe.

References

Li, A. H. (2015). Tumbled stock market, RMB devaluation and financial reform in China. China Perspectives, (4), 63.

Tejada, C. (2015). 5 Things to Know About China’s Currency Devaluation. Retrieved from http://www.burlington.org/departments/library/docs/China_Currency_2015.pdf