Yuan: To Peg or Not to Peg - The Case Centre

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Case

Reference no. 204-093-1

Subject category: Economics, Politics and Business Environment

Authors: G Srikanth (IBS Case Development Center); Ankeet Bajaj (IBS Case Development Center)

Published by: IBS Case Development Center

Published in: 2004

Length: 7 pages

Data source: Published sources

Topics: Chinese yuan, renminbi; US dollar; Currency pegging; Balance of payments; Reserve currency; Exchange rates; Unemployment; Asian financial crisis; Chinese economy; China's foreign trade; China's exports and imports; People's Bank of China; Inflation rate; Free Float; The Big Mac Index

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Abstract

The Chinese yuan is pegged to the US dollar and the exchange rate is maintained by large-scale purchases of the dollar from the open market by the People''s Bank of China. Buoyed by an undervalued yuan, China has been enjoying large trade surpluses with the US and has built huge foreign exchange reserves. This, coupled with a fall in the US dollar, has increased pressure on China to remove the dollar peg or at least make the yuan more flexible. But China has been resisting such a move. The case helps to discuss the implications of the yuan-dollar peg and the impact on the trade between the two countries. A structured assignment ''204-093-4'' is available to accompany this case.

Location:

China

Other setting(s):

2004