China’s exchange rate policy and

trade imbalance
Yongwei wang
Economic policy
30/11/2022
 contents
• Five exchange rate regime
• China’s managed floating exchange rate
• Trade balance
• How china manage the exchange rate and
benefit from it
• conclusion
 four exchange rate regimes
• Dollarisatio regime
• linked exchange rate regime
• managed floating exchange rate regime",
where central banks can intervene as
appropriate
• fully floating exchange rate regime" for the
Japanese yen, US dollar and eurozone
currencies.
 China’s managed floating exchange
rate
• Base Rate
In July 2005, the people’s bank of China
announced that, China would be reforming
the Renminbi exchange rate regime moving to
a managed float based on market demand.
• Huge foreign currency reserved
China’s foreign reserves

Figure1 China’s foreign reserve2010-2020

Germany foreign reserves

Figure2 Germany’s foreign reserves 2010-2010

 Trade balance
The chart shows
that China's trade
surplus with the
US has been
stable and
growing through
the
implementation
of the Chinese
government's
own exchange
rate policy.
Figure 3 China’s trade balance
 Figure 4 Foreign-exchange market model

With the model from course,

exchange rate changes affect by
demand. Demand determines the
volume of trade, which means trade
surplus.
Renminbi exchange rate changes

Figure 5 2010-2020 China’s Currecy exchange rate

 Why china choose the managed
floating exchange rate regime
• Curb the liquidity of foreign exchange reduces
the impact of other market participants on
exchange rate price changes, at the same time
controls excessive appreciation of the local
currency to reduce the harm to exports and
gain more benefit.
 Policy benefit
• Internal: Different economic policies in
different regions and industries protection
• External: Taxing a lot of foreign good and
Subsidized export goods
 Conclusion
• Stablized Chinese currecy, avioded Finacial
Criticises
• Gain Benefit from internatioanl
trade(especially from U.S.A ）
 Reference
1.World bank data(Online)
https://data.worldbank.org/
2.John Ryan, Reforming China’s exchange rate
Policy, 2006, ISSN: 1827/336X No.51/WP/2006
•Thank you