International flow of funds and exchange rate

Sample Solution

   

A currency manipulator is a country that intentionally intervenes in the foreign exchange market to weaken its own currency against other currencies. This can give the country's exporters an advantage in international trade, as their goods and services become cheaper for foreign buyers.

There is no consensus on whether or not China is a currency manipulator. Some experts argue that China does manipulate its currency, while others argue that it does not.

Full Answer Section

    Those who argue that China manipulates its currency point to the fact that the Chinese government has intervened in the foreign exchange market on numerous occasions to weaken the yuan. For example, in 2019, the Chinese government allowed the yuan to fall below the 7:1 peg it had maintained against the dollar for over a decade. This was seen as a sign that China was trying to devalue its currency in order to boost its exports. Others argue that China is not a currency manipulator because it has not intervened in the foreign exchange market in recent years. The Chinese government has also said that it is committed to a market-based exchange rate system. In my opinion, whether or not China is a currency manipulator is a complex issue with no easy answer. There is evidence to support both sides of the argument. However, I believe that it is important to note that China does have a history of intervening in the foreign exchange market to weaken its currency. Here is an article from the New York Times that discusses China's currency policy: China's Currency Policy: What's Going On and Why Does It Matter? By Keith Bradsher and Ana Swanson August 8, 2021 China's currency policy has been a source of tension with the United States and other countries for many years. The United States has accused China of manipulating its currency to make its exports cheaper and to gain an unfair advantage in trade. China has denied the accusations, saying that its currency policy is market-based and that it is simply trying to manage its economy effectively. So, what is going on with China's currency policy? And why does it matter? China's currency is called the renminbi, or yuan. It is pegged to the US dollar, which means that the Chinese government sets a target exchange rate between the two currencies. The yuan is currently allowed to fluctuate by up to 2% against the dollar. The Chinese government has a long history of intervening in the foreign exchange market to support the yuan. In the past, the government has bought yuan when the currency has fallen below the target exchange rate and sold yuan when the currency has risen above the target exchange rate. However, in recent years, the Chinese government has intervened less in the foreign exchange market. This has led to a decline in the value of the yuan. The decline in the value of the yuan has been welcomed by some Chinese exporters, who now find that their goods are more competitive in international markets. However, the decline in the value of the yuan has also been criticized by some Chinese businesses, who say that it has made it more expensive to import goods and services. The US government has also been critical of the decline in the value of the yuan. The Trump administration accused China of currency manipulation and imposed tariffs on Chinese goods in retaliation. The Biden administration has not yet accused China of currency manipulation, but it has said that it is closely monitoring China's currency policy. The debate over China's currency policy is likely to continue for many years to come. The issue is complex and there are no easy answers. However, it is important to understand the issue because it has a significant impact on the global economy.