The Importance of the Chinese Yuan in the Global Economy

Research the Chinese Yuan and discuss its importance in the global economy.
The yuan keeps the economy of China globally competitive. The yuan is pegged on a basket of
currencies including the US dollar, because of this, the yuan value has been maintained in a 2%
trading band around a reference rate which has tracked the dollar value. In 215, China adjusted
its exchange rate policy which provided the currency with a higher market volatility which made
the currency drop, however eventually the government intervened in order to maintain it value.
The yuan becomes stronger on the weakening of the US dollar, this makes the currency weaken
compared to the country’s trading partners in Asia and Europe making china’s exports more
competitive compared to local products. The devaluation of chin’s currency was a point of
contention since it made exports from the US and Europe more expensive hence promoting local
production. This could reduce the output from the US and Europe hence making the countries
experience a decline in the GDP (Forrest & Gong, 2018)
Looking at China’s current economy, discuss their exchange rate and the impact it has had
on the foreign direct investment (FDI) in their country.
The Yuan value is maintained by the central bank, the peoples bank of China. It tries to redeem
dollars for the yuan at the current exchange rate and for it to do so it needs to keep a good supply
of dollars in the foreign exchange reserves. However, as the economy grows, it buys more US
treasury’s which can be sold fat dollars to meet the level of yuan being redeemed by exporters.
Currently china part of the largest foreign holders of the US treasury bonds. China has capacity
to threaten the position of the US dollar through the sale of the US treasury bonds since it is a
significant shareholder. The china exchange rate policy has increased the attractiveness of FDI