CHINA’S RENMINBI: “OUR CURRENCY, YOUR PROBLEM” Due at 12:30 pm, Oct 31, 2012 Please submit your answers ELECTRONICALLY by group to huangyr. [email protected] tsinghua. edu. cn Part I Answer the following questions based on the material of the case (BEFORE year 2007) 1. Why are Japan, the newly industrialized economies (. NIEs. ) and developing Asian countries less vocal than the US on the valuation of the RMB? 2. Present a balance of payment to understand the internal and external flows, and analyze the different components of the Chinese balance of payment.

Do you think the renminbi is overvalued against the US dollar? How can China maintain the exchange rate of the RMB? Exchanging all of China’s US dollars for renminbi can lead to inflationary pressure. How does China avoid this risk? 3. Does maintaining a quasi-peg to the US dollar have a cost for China? Does the policy of buying US Treasury bonds have any negative impact on China’s or the world’s economy? 4. Why, despite the huge US trade deficit, has the US dollar not fallen? Do you think there is a risk of this happening? 5.

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What would be the consequences of a 20% revaluation for China, western countries, Japan, NIEs, Hong Kong and other developing countries? How would it impact workers, exporters and Importers in China? 6. If China adopted a major revaluation of its currency, should the revaluation be a one-off or progressive reform? Should China Lift its Capital Controls? If Yes, Should it Be a One-Off or Progressive Reform? Are there Alternative Solutions to the Revaluation that Would Reduce Trade Tensions between China and Western Countries?

Part II Search for up-to-date information online to answer the following questions (AFTER year 2007) 1. Present a graph of fluctuations of RMB exchange rate after year 2007. Describe the major steps China has taken during its currency and capital account reform. 2. Analyze the new patterns in balance of payments of China since year 2007. What do you think are the main forces driving the new patterns? 3. Do you think the RMB is still overvalued against the US dollar? Why?

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