Policy Making Processes China s Exchange Rate Policy

Policy Making Processes Memorandum for Chinese President Xi Jinping From: International Monetary Fund Executive Director for China Runke Sun Subject: Prevent China’s Exchange Rate Policy from Regulatory Capture China’s exchange rate policy: â€Å"a dirty float† Exchange rate measures the value of one country’s currency through another country’s currency, so it acts a significant role in international trade, by which I mean a wide range term, not only infers import and export trade, but also includes offshore financial transaction and futures trading, even transactions in foreign travel. Therefore, exchange rate policy is an important part of a country’s policy, affecting both domestic economy and foreign relation. For a long time, China had†¦show more content†¦The exchange rate responsive to market forces in a certain range limited by PBOC.4 Analysis of the possible regulatory capture in China’s exchange rate policy We could not blame a country too much for the aim of keeping a relative stable exchange rate, but it is in some way contrary to the original intention of the floating exchange rate, so we need to find out the real motivation of China’s dirty float. As previously cited, exchange rate policy has important effect on international relationship. The most likely reason why China adopted a dirty float regardless of foreign pressure is domestic politics. As we all know, consumption, investment, and net export are the troika of economic development, and decision makers must take these three factors into account. Even though these industries’ interest is not entire public interest, but there is close connection between them. Moreover, it’s not hard to draw a conclusion that the industry with more contribution to economy is more likely to obtain strong political power. In term of economy industries, we can divide them into tradable industries and non-tradable industries. For instance, manufacturing industry is a tradable industry, while banking industry is a non-tradable industry. In China, tradable industries produce more output, merely manufacturing industry accounts for at least one third ofShow MoreRelatedGlobalization Is Not An Irreversible Process1502 Words   |  7 Pagesincompetent economic policies, unemployment, and social instability. In fact, this worsened the global depression and led to sharply reduced trade, plunging output, and pervasive unemployment. This is a standing proof that globalization is not an irreversible process as global economic integration clearly took several steps backwards during this period. 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