FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS

ACADEMIC YEAR

BBMF3123 INTERNATIONAL FINANCE

TOPIC 3 :
Can the US Dollar sustain its supremacy as the world currency? Can China replace the US
A for economic power?

PROGRAMME:
SEMESTER:
LECTURER NAME :
TUTOR NAME :

No. Group Member’s Name Student ID No. Score

1.

2.

3.

4.

SUBMISSION DATE:

Assessment criteria:

1
 Criteria Max. Rating criteria Rating Scored
Mark Poor Average Good Excellent (1-4)
(1) (2) (3) (4)
Section I: Grou (b/4)
p Report (a) (b) x (a)

40 Poor display of Good display o Thorough display of

Limited displa
relevant knowl f relevant know relevant knowledge
Relevance of y of relevant k
edge or with m ledge but with and thorough analys
Content: nowledge and/
isconceptions. some misconce is. Possesses a thoro
Understandin or with miscon
Lack of ability ptions. Evidenc ugh and comprehens
g and interpre ceptions. Able t
to evaluate and e of good abilit ive knowledge on a
tation of the t o evaluate and
synthesise the y to develop a wide range of subjec
opic and appr synthesise the
current knowle well-structured t areas and is able to
opriate use of current knowle
dge and unders arguments, sol critically evaluate an
facts and theo dge and unders
tanding on the ution, evaluatio d synthesise them in
ries. tanding of the s
subject areas. n and explanati to a coherent structu
ubject.
on re.

10 Very limited re
Research Effo
search evidenc Some evidence Clear evidence Excellent
rt
e

Report writin Reasonably cle

Poor organisati Good organisat
g: Layout and ar organisation
on and incoher ion and cohere Very good organisati
fluency of lan and coherent pr
ent presentatio nt presentation; on and coherent pres
guage used. A esentation; lay
10 n; layout lacks layout reasona entation; layout clea
bility to prese out has limited
clarity, concise bly clarity, con r, concise and effecti
nt in clear and clarity, concise
ness and effecti ciseness and ef ve.
concise mann ness and effecti
veness) fectiveness.
er. veness.

Harvard Refer
encing and cit 5 Poor Average Above-average Good
ation

Total 65

2
 Criteria Max. Mar Rating criteria Rating Scored
k Poor Average Good Excellent (1-4)
(1) (2) (3) (4)
Section II: Individual report (b/4)
(a) (b)
x (a)
Justifications/ convincing arguments and
appropriate use of facts and theories. 35

Name (Sequence must be same as the in

dividual report and cover page):

1)
. .

Total 35

Total coursework marks for written assignment

Student’s name Group Report (6 Individual Re Total marks (100

5%) port (35%) %)
1
2
3
4

3
 APPENDIX 3 (Rev. 2.1)

FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS

COURSEWORK FEEDBACK FORM FOR WRITTEN REPORT

COURSE CODE/ COURSE TITLE: BBMF 3123 INTERNATIONAL FINANCE

NAME OF STUDENT(s): ID No:
1)

2)

3)

4)

PROGRAMME:
YEAR OF STUDY: SEMESTER: ACADEMIC YEAR:
GROUP NO:
COURSEWORK NO: NATURE OF COURSEWOR MARKS ALLOCATED:
K: (e.g individual/group assign
ment, project paper, report et
c)
/100

Overall feedback (e.g. strengths, weaknesses , areas for improvement etc) :

Student’s Acknowledge Date: Lecturer’s /Tutor’s Na Date:

ment: me and Signature:

Note: This form must be submitted together with the assessment grid/grading criteria used for the cour
sework.

4
Group Member Appraisal Form
The basis of this evaluation is your group member’s commitment to completing the assignment and their r
egard for other members of the group. Group leader should assess the members’ commitment based on th
e contribution given by each member and his or her involvement in this assignment.

Group members should be appraised using the following basis:

● Group member attended all group meetings and if unable to attend, contacted th
e group in advance and came to an alternative arrangement that the majority of g
roup members were happy with;
100% ● Group members contributed to group discussion;
● Group member always offered to help or volunteered for task; and
● Group members completed the task assigned on time.
● Group member missed group meetings without making alternative arrangements
with other group members;
50% ● Group member assigned task were only partly completed or poorly completed; a
nd
● Group member did not contributed to the group effort or volunteer for task’
● Group members attended a few meetings and made no contribution to the assign
0%
ment.

Name of group leader:

Instructions:
1. Place the name of each of the members in your group in the space provided below.
2. Appraise each of the members in your group by circling one of the columns below (i.e. 100
%, 50% or 0%)

Group Member Scoring

1. 10 50% 0%

2. 10 50% 0%

3. 10 50% 0%

4. 10 50% 0%

5
Coursework Declaration

Semester:

Course Code & Title: BBMF 3123 INTERNATIONAL FINANCE

Declaration

I/We confirm that I/we have read and shall comply with all the terms and conditions of Tunku Ab
dul Rahman University College’s plagiarism policy.

I/We declare that this assignment is free from all forms of plagiarism and for all intents and purp
oses is my/our own properly derived work. I/We further confirm that the same work, where appr
opriate, has been verified by anti-plagiarism software.

Signature(s):

Name(s):

Date:

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
 TABLE OF CONTENTS

Cover page……………………………………………………………………………….1
Assessment criteria for Section I: Group Report………………………………………...2
Assessment criteria for Section II: Individual Report…………………………………...3
Coursework feedback form for written report…………………………………………..4
Group member appraisal form…………………………………………………………..5
Plagiarism statement…………………………………………………………………….6
Full turnitin report……………………………………………………………………..7-28
Table of content………………………………………………………………………...29
Group written report
1.0 Introduction………………………………………………………………30-31
2.0 Requirements…………………………………………………………….31-32
3.0 Current Position of US & China…………………………………………33-37
4.0 Missing elements of China……………………………………………….37-39
5.0 Conclusion…………………………………………………………….. …..39
Group report references………………………………………………………………40-46
Group report appendices……………………………………………………………..47-49

29
 CONTENT OF REPORT

Section I : GROUP REPORT

1.0 Introduction

A world currency refers to obtaining a large amount of currency and maintained by the central ba
nks and other financial institutions for investments, international debt obligations, transactions an
d influence on the domestic exchange rate (Goldberg 2004). These currencies are used for involv
ement in the global economy, such as through international transactions and investment, pay for i
mports, improve the currency value and service debts.

According to Bowles, Paul & Baotai (2008) the United States dollar has become the cornerstone
of the International Monetary System since the end of World War II and the U.S dollar has been t
he most important currency for more than 60 year. The U.S dollar is running under the Bretton W
oods system, the dollar was pegged into the dollar. In this case, the dollar is playing the main inte
rvention currency resulting in the dollar becoming a world reserve currency (Greene 1991). The
Bretton Woods system could impact the fluctuations in the exchange rate of the dollar currency a
nd increase other global economic powers (Cohen & Benjamin 2012). Amadeo (2022) notes that
with holding a reserve currency, it could help the U.S dollar currency minimize the exchange rate
risks and the dollar has been widely used for international trades and other transactions globally
because no need to exchange the currency for the current reserve currency to make the purchase.

Since 1994, there are a number of countries that use the U.S dollar in place of their own currency
such as Canada, Mexico, Barbados, Bermuda and many more (Anderson & Wincoop 2004). Mei
zhou (2012) states that the dollar is the strongest currency, it could strengthen the U.S economy t
o increase their value andthe dollar has conferred some benefits to the U.S which allows the U.S
to borrow money abroad more easily and impose aveny financial sanctions.

However in recent years, China’s economy has been deemed as rapid growth and strong which di
rectly affected the U.S dollar by loosely pegging the value of the yuan towards the dollar (Thorbe
cke 2011). On August 11, 2015 the People's Bank of China (PBOC) modified the traditional fixe
d exchange rate that differs from the floating exchange rate which the United States uses (Amade

30
o 2022). The reason for PBOC to modify the peg is because it wasnt to keep it fixed to a basket o
f currencies which can reflect its trading partners, the United States and wants the Chinese yuan t
o be more driven by market forces because it can lead to obvious fluctuations in the value of the
yuan. Hence, this paper is going to discuss if China’s yuan has the potential to become the world
current and compete over the U.S dollar.

2.0 Requirements

According to Kawai & Masahiro (2008) Being the leader of the world’s currency, it could obtain
a number of benefits involving international trade and assure its currency can impact the internati
onal financial system. In this report we will be discussing some of the requirements that China ne
eds in order to become the world's currency, as for now China is not capable of being the world's
currency until fulfilling the required needs given below:-

First and foremost, the requirement of having a large and advanced economy, is the key determin
ant of the currency’s status as a reserve currency (Frankel & Wei 2007,) . In order to become a w
orld’s currency, China’s currency yuan must involve strong exchange rates compared to other cur
rencies. Besides that, a strong economy generally increases the value of the currency and it could
strongly influence the stock market and the commodities markets (Athukorala 2009). In fact, the
value of the currency must be steadiable all the time to assure the value. According to Rodrik (20
06) states that with a strong economy, China will be able to have vast amounts of the country’s c
urrency denominated securities available. The value of the currency plays a fundamental role in
wealth and the ability of purchasing power.

Furthermore, Gross Domestic Product (GDP) is another requirement to measure the total value o
f economic welfare or living standard of a country like China and measure in its own currency yu
an (Marquez & Schindler 2007). A nominal GDP tends to raise the money supply, it could be refe
rred to as constraint price, inflation and interest rate. Yu (2006) notes that with a large GDP rate, i
t could be influenced by the productivity of the economy and frequently involved in international
trade and assures it can impact over the international financial system. In addition, the currency v
alues are determined by the freely floating exchange rate, fixed or pegged exchange, which could
largely influence the demand and supply of the currency (Thorbecke & Smith 2010). To become

31
a reserve currency, China must be in a long time with high demand for a currency, thus, China ca
n increase the supply of its yuan to other countries.

According to Gao & Yu (2011) a Special Drawing Rights (SDR) is referred to as an international
type of monetary reserve currency which was established by the International Monetary Fund (I
MF) in 1969 and a supplement to the existing money reserve (Appendix 1). The SDR has become
one of the major elements of international reserves, it could be formed by the gold and reserve cu
rrencies. Additionally, the central bank and government will be involved in reserves of gold and t
he currency reserve globally and accept foreign currencies that could be bought from the local cu
rrency in the foreign exchange market to stabilize the exchange rate (Subramanian 2011).

Lastly, if a country like China holds more SDRs and large currencies, it must fulfill two main crit
eria which are the export and freely usable criterions (Greene 1991). If the currency has met the e
xport criterion, China can become the IMF members and the top five world exporters. Also, for t
he freely usable criterion it means that the currency of China can be widely used for international
transactions and traded in the principal exchange markets (Marquez & Schindler 2007). Thorbec
ke (2011) indicates that it is to ensure that the SDR basket has relative importance of the currenci
es in global trade and financial systems. In short, the value of the SDR is determined by daily exc
hange rate and also used to assess the financial instruments which consist of the SDR interest rat
e.

3.0 Current Position of US & China

(i) Stability of U.S dollar

32
Over the past few decades, the USD is one of the strongest and widely used currencies for global
transactions. Most investors and people chose USD over other currencies due to one reason, its st
ability. In 1944, Franklin D. Roosevelt and leaders from around the world collaborated to form th
e Bretton Woods Agreement, which established the U.S. dollar as a reserve currency pegged to th
e price of gold (Corporate finance institute n.d.). Under the agreement, countries promised that th
eir central banks would maintain fixed exchange rates between their currencies and the American
dollar (Federal Reserve History 2013). This agreement had made the American dollar one of the
strongest currencies and the first global currency to appear in the world. That achieved stability
will soon be destabalized due to hyperinflation. According to Hughes (n.d.) In 1971, the United
States suffered from massive stagflation, a combination of inflation and recession, which causes
unemployment and low economic growth. In order to tackle this problem the president of the Uni
ted States of America had created a new solution for this problem. According to the International
Monetary Fund Organisation (n.d.) in August 1971, U.S. President Richard Nixon announced the
"temporary" suspension of the dollar's convertibility into gold, and by March 1973 the major curr
encies began to float against each other, ending the Bretton Woods Agreement. This in turn had t
urned USD into a floating exchange rate system, whereby the value of USD is dictated by the su
pply and demand of the dollar and a foreign currency as its denominators. By using a floating ex
change rate system, the USD had been stable for the past decades, excluding major financial cris
es. According to Bertaut, Beschwitz and Curcuru (2021), the dollar index level has remained stab
le at a value of about 75 since the Global Financial Crisis in 2008, well ahead of all other currenc
ies (Appendix 2).

(ii) Stability of Chinese Yuan

Over the last few years, China's yuan has been extremely stable, almost as if it were being manag
ed by the government (Klein 2020). The reason why China’s yuan has remained stable for the pa
st few years is because of China’s currency peg and how The People's Bank of China manages th
eir currency. According to Bohaird (2020), the Chinese yuan has had a currency peg since 1994.
China's currency is transparently pegged to the U.S. dollar at about 6.8 yuan to the dollar (Smith
2009). Having a currency peg can keep the yuan low compared to other currencies and consumer
s using foregin currencies are able to purchase more of China's exports than they would if the yu
an was more expensive. According to Delaney (2005) a peg between the United States and China

33
currency has unfairly benefited Chinese exporters by undervaluing the currency. The People's Ba
nk of China uses this strategy to boost the appeal of Chinese goods on the global market and to a
ssist China to achieve greater prosperity. The lower currency value gives them a comparative adv
antage by making their exports to America cheaper (Amadeo 2020). While many governments e
mploy expansionary policies in the hopes of achieving the desired goals, China did it differently.
According to Amadeo (2022) China holds the dollars in its foreign exchange reserves and regular
ly adjusts these reserves by buying or selling dollars via foreign currency markets in exchange fo
r yuan. Since the beginning of 2017, the yuan has been range-bound, moving no more than 4% in
either direction when measured against the trade-weighted basket targeted by the People’s Bank
of China, known as the CFETS index (Klein 2020). In the case of the coronavirus, the stability is
especially notable: despite the changes that have happened since the beginning of 2020, the CFE
TS index has barely budged, with the difference between maximum and minimum values falling
at less than 5% (Appendix 3).

(iii) Fluctuations of U.S dollar

Since World War I, the British have abandoned the use of gold as world leading reserve, the USD
that remained in the possession by the U.S have been transformed into the use of USD, hence the
USD have been used in a practical war ever since and dominated the world market currency (Eic
hengreen & Tong 2015). Unfortunately, due to the Covid 19 Pandemic and the administration of t
he U.S President Joe Biden, U.S have depleted their own resources to survive in the pandemic w
hich causes a mass rather than spending the money. Thus, the rendering low flow in the economy
makes the interest in loan and fixed deposit off balanced similarly to the government that needs a
n abundant amount of the assets to make changes for the administration of the new President (Go
pinath 2015).

Besides that, the ongoing trade war since March 23, 2018 lasting till today possesses a great tarri
f for both China and U.S, the both countries have most of the reliance on the import and export p
roducts (Eichengreen & Flandreau 2010). The market flow of the amount of currency is great bu
t unlike the Chinese yuan, the U.S dollar is indeed one of the stable yet high amounts of the worl
d currencies, imposing tariffs that makes the U.S dollar suffer the most just by the value of tax an
d labour (Kearns & Patel 2016). Moreover, the dominance of the global economy by the U.S doll
ar has been tipped off when the trade war has been opposed, the unit of U.S dollar cost as much a

34
s 6 times the Chinese yuan. This means that the work done needed in terms of the currencies is m
uch cheaper with Chinese yuan and leading the investment from other countries to use Chinese y
uan to fulfil instead of the U.S dollar (Takagi 2009). Thus, this made the U.S manufacturers in C
hina to step out of the China market in order to search for a subistuure investor while China had t
he upper hand in taking dominance of the global economy (Wilson 2001).

Despite the trade war, it has been long known for China to have the majority market in Asia such
as South Korea, Japan, Singapore and many more, which brings a drawback for the U.S to have a
little bargaining power to dominate the market in Asia with higher rate in currencies (Arize 1994).
For example, the Vietnamese dong, Malaysia ringgit and Indonesia rupiah competition in trading
and so on had become an beneficial trait for Chinese yuan since the Yuan have much more lower
in value and threatens currencies such as Singapore dollar, Japanese yuan that have close values t
o U.S dollar in terms of currencies makes it most invasive and fast growing currencies for the 2n
d and 3rd worlds countries trading currency option causing the demand of the U.S dollar to drop
significantly (Chou & Chao 2001).

(iv) Fluctuations of Chinese yuan

It has been reported that in recent weeks the U.S dollar is losing its supermay to be the global for
eign reserve currency because it has loosened its strength. Although it is a stable currency world
wide. Brown (2019) pointed out that it has been noted that the Chinese yuan is gaining more imp
ortance that the U.S dollar and that its use as a global reserve currency has increased indicating t
hat China is becoming more popular and influential economically. FRED (2019) states that the C
hinese Renminbi is at the sixth number of widely used global exchange reserves used in carrying
expenditures at international level. It has settled about 20% of trade in China. On the other hand,
the U.S dollar is still accounting for about 12% global trade contracts but the quotation of global
trade contracts is about 50% in terms of U.S dollars (Myers 2018). The Chinese yuan has been re
volving around the dollar for many years. The large outflow of capital in China in the past years r
esults in lower exchange reserves of Chinese yuan than the U.S dollar. Thus, the Chinese yuan is
struggling against the trade and economic pressure to become a global currency (CNBC 2018). I
n fact, during the Covid 19 pandemic, although the Chinese yuan was getting weak the yuan curr
ency managed to recover slowly.

35
Furthermore, the degree of global trade contracts is not only the cause of the U.S dollar to be a gl
obal reserve currency among all countries (Li et al. 2015). The Chinese yuan wants to replace the
U.S dollar to become a global reserve currency among all countries since there would be more co
ntrol over its economy. Wang (2018), stated that the Chinese yuan strethend to 6.6 yuan as comp
ared to the U.S dollar at the end of year 2021. Zhang (2012), acknowledges that increment in for
eign investments in foreign investments intro the domestic markets of China enhances the usage
of Chinese yuan to make it possible for the Chinese yuan currency to be top three among all the c
ountries in the world as largest global reserve currency. Though, the China government has been
trying to encourage the use of Chinese yuan at an international level which is also known as Ren
minbi (rmb). It has been reported that the Chinese yuan is an asset accountable for 2% of global f
oreign exchange reserves (Kenen 2009). However, by 2030, the accountability of the Chinese yu
an will be enhanced between 5% to 10%. The China government has taken a step forwards towar
ds enhancing and allowing more foreign institutions related to finance and economy into the dom
estic market of China. Since, the goreign investors are turning at an increased level towards the d
omestic market of China because of comparatively high profit gain as return as compared to othe
r regions (Benetrix 2019).

Lastly, investments result in more assets to be held in yuan globally. It has gained power internati
onally through huge struggles. According to Goujon & Guerineau (2006), traditionally the grip o
n the currency is tight by the China government which prevents the huge amount of capital from
leaving China. In 2020, more than 90% of dollars will take place in Forex trading. Subramanian
(2010), mentioned that in 2020 foreign exchange in banks will take place in dollars more than 60
%. Besides that, the U.S mainly in Latin America and former Soviet countries, the dollars half in
number are in circulation. More than half of the financial trade occurs in dollars as of 2020 (Ken
en 1983). According to Appendix 4 the exchange rate of Chinese yuan over the U.S dollar shows
big variations over the recent months (Xe 2022). Hence, this indicates that the Chinese yuan is gr
owing positively with big potential.
(v) Volatility of Chinese yuan versus U.S dollar
According to Bloomberg (2015) the trading of the RMB was restrained until July 2005, when the
currency was allowed to strengthen versus the dollar, in keeping with the currencies pegged and
unpegged phases. In comparison to earlier periods of examination, the pair experienced the highe

36
st level of volatility over the next three years, at 0.0057 (Appendix 5). The increase was particula
rly noticeable in the years leading up to the global financial crisis in 2008. This is understandable
given the currency's transition to a managed floating system, in which trading led to appreciation
(International Business Times 2015). However, between 2009 and 2010, the volatility reduced to
0.0011 as China delayed the RMB's appreciation due to the global impact of the crisis on exports
The volatility has increased in recent years, particularly in August 2015, when China startled the
world by weakening its currency by about 2% (Li et al. 2015). The country said the devaluation
was due to market forces, but the move sent global markets into a tailspin as investors worried th
e economy was in worse shape than previously assumed.

4.0 Missing elements of China

In recent times Chinese yuan has been internationalised and started playing an important role in t
he financial market. However, the value of yuan is still behind the U.S dollar as it is not compara
ble as an investment currency. The Chinese yuan has yet to replace the US dollar as the world's c
urrency for several reasons and restrictions.

Firstly, the yuan’s domestic deficiencies have been one of the reasons for the stunt in rising as a g
lobal reserve currency (Goujon & Guerineau 2006). The domestic factor is China’s financial poli
cy framework. Because it is highly opaque and continuously developing, China's financial syste
m is particularly difficult to assess. As a result, China's national, regional, and local governments
play a considerably larger role in directing the activities of banks and other financial intermediari
es than in America or Europe, which encourages opacity (Haggard 2000). In order to make a curr
ency attractive to foreign central banks and als to the investors it is important for the currency to
have a steady financial system and market based. Subramanian (2010) mentioned that the capital
account openness, financial market development, and monetary stability are three major characte
ristics of China's financial market where it falls short. Despite China's recent opening to foreign c
apital inflows, capital account regulations remain a fundamental impediment to the yuan's succes
sful internationalisation (Park 2010). Furthermore, the Chinese government continues to impose
severe limitations on short-term cash movements. Besides that, China imposed restrictions on ev
ery type of cross-border financial stream that the IMF monitors in 1995, but in 2013, the most re
cent year for which data is available, China restricted 90% of exchanges (Ito 2011). In 2013, only

37
six of the 100 countries in this database had more extensive capital controls than China. Since 20
13, there have been no significant changes in China's record receptivity, as seen in more detail be
low (Zhang & Xu. 2011). As late examination clarifies, China's capital account is one of the most
tightly guarded among major emerging countries. This had increased the gap between the U.S an
d China because the U.S only restricted 15% in 2013, there were several different sorts of cross-b
order financial transactions (Kenen 1983).

The political choices are the financial policy decisions. This is because a country’s potential arra
ngements will also affect the currency’s attraction towards the investors (Grassman 1973). The pr
esence of ‘good’ establishments persuades foreign investors that the nation will keep up great arr
angements and gives those foreign investors assurance that their investments won't lose any valu
e (Frankel 2005). This improves the probability that unfamiliar national banks secure and clutch t
hat country’s cash for investment purposes. This part considers a few institutional courses of acti
on that are probably going to improve a country’s currency with foreign investors and shows that
China has poor quality establishment contrasted with those in other reserve currency countries (C
hinn 2005). Besides that, the principal part of institutional quality is the level of political democr
acy. Political requirements make it more outlandish that an administration can change its approac
hes spontaneously, which builds the certainty of investors. China is clearly proven not a democra
cy. However, contrasted with most different nations, particularly most other reserve currency issu
es, which are all democratic, imperatives of China’s chief are insignificant and it has weak rule o
f law (Ito 2011). China’s political framework is likewise obscure, with financial measurements th
at are famously inconsistent and subject to political control. In short, China's yuan. Goldberg & T
ille (2008) contends that China’s institutional insufficiency will prevent the RMB from being see
n as a ‘place of refuge’ money and seriously stunt its latent capacity.

Furthermore, China’s industrial productivity is well integrated with that of its Asian neighbours a
nd its regional trade is much larger than eastern countries. Kawai & Masahiro (2008), China’s str
ong imports and exports costs compared to other countries, reflecting China’s status as an assem
bly hub in integrated Asian supply chains. However, there are a few policies in place in China to
boost domestic domestic investment demand. As a result, China’s financial infrastructure might n
ot be fully complete in the world. In China, there will be issues with a shortage of liquidity and ri

38
sk management products such as hedging investments and derivatives. Moreover, 51% of offshor
e inverters say that they don’t have enough Chinese currency to complete their trade (Bowles et a
l. 2008). In the past, the majority of offshore investment into China was shareholder loans. This i
s also one of the issues that contributed to the August 2015 market crash in China, which was cau
sed by a shortage of counterparties in both goods and service transactions (Meizhou 2012). How
ever, according to Thorbecke (2011), it indicated that the offshore yuan’s liquidity is still minima
l, pricing in the offshore yuan market is more volatile than onshore yuan’s pricing. Thus, bringin
g liquidity into China is still constrained by the funding deficit, which restricts the volume of yua
n open to corporate customers.

5.0 Conclusion

In conclusion, the requirement of the Chinese yuan to be an international currency was strongly e
mphasised in the advanced economy of China with the strong exchange rates. Moreover, the GD
P is also an important requirement as it will raise the money supply as inflation and etcetera as th
e currency value are being determined through floating exchange rate, fixed or pegged exchange
(Athukorala 2009). The SDR is also a main element for international reserves which may increa
se the possibility for the Chinese yuan exchange rate to weaken (Greene 1991). As a result of for
eign acquisitions, more reserves are invested in yuan around the world. According to Kawai & M
asahiro (2008) the Chinese government has historically kept a close hold on the currency in order
to deter significant amounts of money from fleeing the region. In addition, the missing aspects of
China, on the other hand, reveal a few limitations, including the fact that the financial system of
political arrangements will also affect the currency’s attraction towards the investors resulting in
a strong import and export.
(3993 words)

GROUP REFERENCES

Anderson, J & Wincoop E 2004, ‘Trade costs’, Journal of Economic Literature, vol.42, no.3, pp.
691-751.

39
Amadeo, K., 2020, “What is a peg to the dollar”, viewed 16 March 2022,
<https://www.thebalance.com/what-is-a-peg-to-the-dollar-3305925>.

Amadeo, K,. 2022, “How does China influence the US dollar”, viewed 16 March 2022,
<https://www.thebalance.com/how-does-china-influence-the-u-s-dollar-3970466>.

Arize, A 1994, ‘Cointegration Test of a Long-Run Relation Between the Real Effective Exchange
Rate and the Trade Balance’, International Economic Journal, vol. 8, no.3, pp.1-9.

Athukorala, P 2009, ‘The rise of China and East Asian export performance: Is the crowding-out e
ffect warranted?’, World Economy, vol.32, no.2, pp.34-66.

Benetrix, A 2019, ‘Exchange Rates and the Foreign Exchange Market’, Journal of Economics, vo
l.12, no.7, pp. 23-67.

Bertaut, C., Beschwitz, B., Curcuru, S., “The international role of the US dollar”, viewed 16 Ma
rch, <https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-
dollar-20211006.htm>.

Bloomberg 2015, ‘China Keeps a Tight Rein on Yuan a Decade After End of Peg’, Journal of Chi
na Economics, vol.2, no.4, pp.90-100.

Bowles, P, Paul, T & Baotai W 2008, ‘The Rocky Road Ahead: China, the US and the Future of t
he Dollar’, Review of International Political Economy, vol.15, no.3, pp.35-53.

Brown, R 2019, ‘In A U.S.-China Currency War, Who Wins?’, viewed 16 March 2022, <https://
www.forbes.com/sites/randybrown/2019/08/15/in-a-us-china-currency-war-who-wins/#456d1d3
2751c>.

Cohen, K & Benjamin, J 2012, ‘The Benefits and Costs of an International Currency: Getting the
Calculus Right’, Open Economies Review, vol.23, no.1, pp.13-31.

40
Corporate Finance Institute, n.d., “Gold standard”, viewed 16 March 2022,
<https://corporatefinanceinstitute.com/resources/knowledge/economics/gold-standard/>.

Chinn, M & Frankel J 2005, ‘Will the Euro Eventually Surpass the Dollar as Leading Internation
al Reserve Currency?’, National Bureau of Economic Research (NBER) Working Paper, New Yo
rk, US.

Chou, W & Chao, C 2001, ‘Are Currency Devaluations Effective? A Panel Unit Root Test’, Econ
omics Letters, vol.7, no.2, pp.19-25.

CNBC 2018, ‘Trade war risks becoming a dangerous currency war as China weakens yuan the m
ost in 2 years’, viewed 16 March 2022, <https://www.cnbc.com/2018/07/20/trade-war-could-be-
morphinginto-currency-war-if-china-is-plays-hardba.html>.

Delaney, R. 2005, Wen sticks by yuan's peg: Chinese Premier beats back pressure for revaluation:
[National Edition], Don Mills, Ont, viewed 16 March 2022, <https://www-proquest-
com.tarcez.tarc.edu.my/docview/330337667?pq-origsite=summon>.

Dobson, W & Masson, P 2009, ‘Will the Renminbi Become a World Currency?’, China Economi
c Review, vol.20, no.2, pp. 124-135.

Eichengreen, B & Flandreau, M 2010, ‘The Federal Reserve, the Bank of England and the Rise
of the Dollar as an International Currency’, Bank for International Settlements (BIS) Working Pa
per, Basel, Switzerland.

Eichengreen, B & Tong, H 2015, ‘Effects of renminbi appreciation on foreign firms: The role of
processing export’, Journal of Development Economics, vol.1, no.16, pp. 146-157.

Federal Reserve History, 2013, “Bretton woods created”, viewed 16 March 2022,
<https://www.federalreservehistory.org/essays/bretton-woods-created >.

41
Frankel, J & Wei, S 2007, ‘Assessing China's exchange rate regime’, Economic Policy, vol.22, n
o.7, pp.575-627.

Friberg, R & Wilander F 2008, ‘The Currency Domination of Exports : A Questionnaire Study’, J
ournal of Economics, vol.1, no.5, pp.34-45.

FRED 2019, ‘China / U.S. Foreign Exchange Rate’, viewed 1 March 2022,
<https://fred.stlouisfed.org/series/EXCHUS>.

Gao, H & Yu, Y 2011, ‘Internationalization of the Renminbi, in BIS Papers, 61, Currency Interna
tionalization: Lessons from the global financial crisis and prospects for the future in Asia and the
Pacific’, Proceedings of a joint conference organized by the BIS and the Bank of Korea in Seoul,
vol.23, no.4, pp. 105-124.

Goldberg, L 2004, ‘Industry-specific exchange rates for the United States’, FRBNY Economic P
olicy Review, vol.10, no.1, pp.1-16.

Goldberg, L & Tille, C 2008, ‘Vehicle Currency Use in International Trade’, Journal of Internatio
nal Economics, vol.76, no.2, pp.177-192.

Gopinath, G 2015, ‘The International Price System’, Kansas City Federal Reserve,vol.17, no.3, p
p.23-34.

Grassman, S 1973, ‘A Fundamental Symmetry in International Payment Patterns’ Journal of Inter

national Economics, vol.3, no.2, pp.105-116.

Greene, J 1991, ‘Currency convertibility and the transformation of centrally planned economy’, I
MF Occasional Papers, vol.23, no.81, pp.19-23.

42
Goujon, M & Guerineau S 2006, ‘ The Modification of the Chinese Exchange Rate Policy’, Chin
a Perspectives, vol. 64, no.5, pp. 2-14.

Haggard, S 2000, ‘The Political Economy of the Asian Financial Crisis’, Institute for Internation
al Economics, vol.23, no.5, pp.89-101.

Hughes, n.d., “Domestic affairs”, viewed 16 March 2022,

<https://millercenter.org/president/nixon/domestic-affairs>.

International Business Times 2015, ‘China’s Yuan Among Top 5 Most Used Currencies In The W
orld’, Journal of International Business, vol. 7, no.4 pp.34-67.

International Monetary Fund, n.d., “The end of Breston Woods System”, viewed 16 March 2022,
<https://www.imf.org/external/about/histend.htm >.

Ito, T, Satoshi, K, Sato, & Shimizu, J 2010, ‘Why Has the Yen Failed to Become a Dominant Inv
oicing Currency in Asia?’, The National Bureau of Economic Research (NBER) Working Paper,
New York. US.

Ito, T 2011, ‘The Internationalization of the RMB: Opportunities and Pitfall’, Manuscript for CD
RF–CFR Symposium, Beijing, China.

Kawai, L & Masahiro, G 2008, ‘Toward a Regional Exchange Rate Regime in East Asia’, Pacific
Economic Review, vol.13, no.1, pp.83-103.

Kearns, J & Patel, N 2016, ‘Does the financial channel of exchange rates offset the trade channe
l’, BIS Quarterly Review, vol12, no.8, pp 95-113.

Kenen, P 1983, ‘The Role of the Dollar as an International Currency’, Occasional Papers 13 Gro
up of Thirty, New York, US.

43
Kenen, P 2009, ‘Currency Internationalization - An Overview’, Lessons from the Global Financi
al Crisis and Prospects for the Future in Asia and the Pacific, Seoul, Republic of Korea.

Klein, M, C., 2020, “Behind the stability in China's currency: Beijing”, viewed 16 March 2022,
<https://www.barrons.com/articles/behind-the-stability-in-chinas-currency-beijings-hidden-hand-
51602846003>.

Li, H, Ma, H, & Xu, Y 2015, ‘How do exchange rate movements affect Chinese exports? A firm-
level investigation’, Journal of International Economics, vol.6, no.9, pp.46-89.
Marquez, J & Schindler J 2007, ‘Exchange Rate Effects on China’s Trade’, Review of Internatio
nal Economics, vol.15, no.8, pp.37-55.

Meizhou, L 2012, ‘Research on Influencing Factors of Currency Internationalization’, Multinatio

nal Panel Data Econometric Analysis’, Shanghai Finance, vol.3, no. 12, pp. 28-30.

Myers, R 2018, ‘The Globalization of United States Debt: The Real Impact of China’s Rise as a
Creditor State’, Indiana Journal of Global Legal Studies, vol. 25, no.3, pp. 495-512.

Park, Y 2010, ‘RMB Internationalization and Its Implications for Financial and Monetary Cooper
ation in East Asia’, China and World Economy, vol.18, no.2, pp.1-20.

Rodrik, D 2006, ‘What's So Special about China's Exports?’, China & World Economy, vol.14, n
o.5, pp.1-19.

Smith, S., 2009, The Forgotten Peg: Chinese Yuan and U.S. Dollar 2009, , Newstex, Chatham, vi
ewed 16 March 2022,
<https://www.proquest.com/docview/189667825/fulltext/CA8400959C444BCDPQ/1?
accountid=38945>.

Subramanian, A 2010, ‘New PPP -Based Estimates of Renminbi Undervaluation and Policy Impl
ications’, Peterson Institute of International Economics, vol.23, no.12, pp.78-90.

44
Subramanian, A 2011, ‘Renminbi Rules: The Conditional Imminence of the Reserve Currency Tr
ansition’, Peterson Institute for International Economics Working Paper Series, vol.8, no.4, pp.1
1-14.

Takagi S 2009, ‘The Internationalization of the Yen. In Currency Internationalization’, Lessons fr

om the Global Financial Crisis and Prospects for the Future in Asia and the Pacific, vol.22, no.1,
pp. 75–85.

Thorbecke, W 2011, ‘Investigating the effect of exchange rate changes on China’s processed exp
orts’, Journal of the Japanese and International Economies,vol.25, no.2, pp.33-46.

Thorbecke, W & Smith, G 2010, ‘How would an Appreciation of the Renminbi and other East As
ian Currencies Affect China’s Exports?’, Review of International Economics, vol.18, no.1, pp.9
5-108.

US Department of the Treasury 2019, ‘Major foreign holders of treasury securities’, viewed 16
March 2022, <https://ticdata.treasury.gov/Publish/mfhhis01.txt>.

Wang, Y 2018, ‘Effects of exchange rate and income on the rate system’, Journal of Chinese Eco
nomic and Foreign Trade Studies, vol. 11, no.3, pp. 236-246.

Wilson, P 2001, ‘Exchange Rates and the Trade Balance for Dynamic Asian Economies - Does th
e J-Curve Exist for Singapore, Malaysia and China?’, Open Economies Review, vol. 12, no.4, pp.
1-26.

Xe 2022, ‘1 USD to CNY - US Dollars to Chinese Yuan Renminbi Exchange Rate, viewed 16 M
arch 2022, <https://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=CNY
>.

Yu, Y 2006, ‘Global Imbalances and China’, Australian Economic Review, vol.40, no.1, pp.1-33.

45
Zhang, B & Xu, Q 2011, ‘RMB Internationalization in the Context of Exchange Rate and Capital
Account Control’, Journal of International Finance, vol.23, no.4, pp. 23-45.

Zhang, C 2012, ‘The Development of the Offshore RMB Business’. Presentation at ADBI–OEC
D Roundtable on Capital Market Reform, Tokyo.

GROUP APPENDICES

Appendix 1 : Special Drawing Rights (SDR).

46
Source : International Monetary Fund

Appendix 2 : Index of International currency usage

Source: Federal Reserve

Appendix 3 : CFETS index and CNY vs USD graph.

47
Source : Barron’s

Appendix 4 : Exchange rate of Chinese Yuan to U.S Dollar.

Source : Xe currency converter

Appendix 5 : Volatility of RMB/USD.

48
Source : Research gate

49