Foreign Exchange Policy of China – Updated in 2010

In foreign exchange market, foreign exchange policy is very good tool to stabilize the currency exchange rate. In any country currency exchange rate stabilization is possible only when central bank has right to stabilize it. If any country government gives the power to central bank to create reserve of foreign currency and supply according to demand of foreign currency, then that country’s currency may stabilize in foreign market.

If we talk about China’s foreign exchange policy 2010, its aim is also to strength his country’s currency in world market. China’s central bank has foreign exchange reserve of 2500 billion dollars in 2010. This policy has raised china in foreign exchange market.

Chinese current account surplus is more than 8 percent of its GDP. While the U.S. current account deficit, which is only 2.9 percent of GDP. This is reason that USA has to be devalued its currency. This way it is cheaper to export to USA by China while the U.S. has to pay high for import from China. USA blames on China that it own currency 'Yuan' is placed on the stabilization policy and it is the growing imbalances in the global economy.

From Mid-July 1997 to 2005 China’s foreign exchange policy was continued on the way of stabilization. July 21, 2005, China abolished the policy of stabilization and made his own Yuan stable in world foreign exchange market. It did devaluated Yuan more than 20%. China again began a policy of stabilization from July 2008. Based on the 6.82 per dollar today Yuan has been stable.

Tim Geithner U.S. Treasury Secretary recommended that China should adopt flexible currency policy, which is balanced and beneficial for the global economy as well. Today around, 10 percent unemployment is in the U.S. The reason Obama is also under pressure from congress.

U.S. policy makers are worried the least evaluation of Yuan. That aside, China's exporters are getting unfair advantage in global markets and on the other hand, it is adversely affecting employment in the U.S. Today, China’s foreign exchange policy is being condemned, while China has no regret. China does not matter this as financial irregularity.

According to Irwin University of California economists Greg Lindane, Kenneth and Jason Dederiq

"For making every Apple iPod costs 150 dollars, including VAT fraction of China's four dollars. But when the iPod is imported from China, then its value is determined as 150 dollars. In other words we can say that the U.S. trade deficit is growing by the artificial."