Yuan Fixed or Float mdavis元的固定或浮动·M·达维斯.cox.smu.pptVIP

Yuan: Fixed or Float Any consideration must start with China’s own economic and cultural history China is both a new country and an old country The last Dynasty was overthrown in 1911 Chairman Mao’s disastrous actions including the “Great Leap Forward” and the “Cultural Revolution” (1976) abolishing private property and causing terrible suffering are still very much part of China’s memory Following Mao’s Death (1976) China’s economy was a wreck and trailed badly behind other Asian economies Deng began a series of reforms such as Agriculture reform (more autonomy to farmers) Reducing the scope of State Owned Enterprises Banking reform (to improve balance sheets and remove non performing loans made to state owned enterprises) Trade reform (encouraging exports) Foreign investment reform (encouraging the establishment of foreign business and partner ships) Yuan History and Controversies In the bad old days (pre reform) the Chinese followed the Soviet’s disastrous model of an over-valued currency and strict exchange rate controls After Mao’s death, China begin to devalue the Yuan In 1986 they introduced the “Dual Exchange Rate” Foreigners could buy and sell currency at the market rate Chinese exporters had to surrender foreign earnings at the fixed (overvalued) official rate. Chinese firms were not happy Yuan History and Controversies In 1994 China was suffering extreme inflation and as part of a new economic stabilization plan the exchange rate was fixed a 8.28/ dollar In 1998, the currency was fully convertible at that rate. Yuan History and Controversies: The Asian Crises In 1997 the Thai bhat came under severe pressure and there was a rapid (and painful) devaluation. The contagion spread to a number of other Asian countries. China successfully maintained the Yuan/dollar exchange rate by buying dollars But these dollars had to be recycled—they were used to buy U.S. financial assets (mostly treasuries). This could have caused a great deal of inflationary pressur