China's Currency Regime: The Perceivd Threat to the U.S. Economy

By Chad Salitan
Volume XIX, No. 1: Spring/Summer 2010

China’s current exchange rate regime is a hybrid of fixed and floating. It was a purely fixed regime from 1994 to 2005, when the yuan was pegged to the U.S. dollar at approximately 8.28 yuan to the dollar. In July 2005, Beijing announced it would revalue the yuan and peg it to a basket of cu rrencies, which among others includes the dollar, the Euro, the Japanese yen, and the Korean won. The weights of each have never been announced. The reforms created what China expert Wayne Morrison calls, “a managed float.” This type of regime is a fusion of a fixed and floating currency. It is similar to a floating regime because market forces determine the direction of the currency’s trend. In China’s case, the yuan is expected to appreciate. However, it is similar to a fixed regime in that Beijing is still acting to reduce how fast the currency rises in value. From July 2005 to February 2010, the yuan appreciated 17.5 percent against the U.S. dollar. Many U.S. policymakers argue that the yuan is still more undervalued than it otherwise would be under a pure flexible exchange rate regime.

CHAD SALITAN is earning his Master’s in International Affairs at George Washington University, concentrating on Security and Development. Hailing from Rochester, NY, he is alumnus of the State University of New York at Geneseo, where he studied In-ternational Relations, Political Science, and Economics. Chad is currently an intern at the U.S. Department of State and is explor-ing opportunities in the foreign affairs field.

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