Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46495
Authors: 
McKinnon, Ronald
Schnabl, Gunther
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Monetary Policy and International Finance 3449
Abstract: 
We argue that criticism concerning the Chinese dollar peg is misplaced as no predictable link exists between the exchange rate and the trade balance of an international creditor economy. The stable nominal yuan/dollar rate is argued to have stabilized Chinese, East Asian and global growth. However, linked to US low interest rates, Chinese sterilization policies and potentially subsidized capital allocation in China the real yuan/dollar rate is undervalued. This has caused -both in China and the United States- structural distortions and threatens to undermine global growth and stability. We propose Sino-American policy coordination to escape from the policy dilemma, which continues to drive global imbalances.
Subjects: 
China
exchange rate
financial stability
economic stability
international policy coordination
currency war
JEL: 
F15
F31
F33
Document Type: 
Working Paper

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