Sample Essay

Many of the countries in East Asia experienced a financial crisis in the 1990s. At this point in time, there was increasing pressure on China to shift to a free floating system by shelving the controls that the central bank adopts. This would have let the Chinese currency depreciate in value akin to the currencies of most of the East Asian economies. However, the Asian giant was successful in avoiding the crisis without having to shift to a freely floating exchange rate system (Goldstein, Lardy, 2008:244-245).

This was a break from the trend in the region which saw Malaysia, Hong Kong and majority of the Asian economies altering their exchange rate mechanisms to managed float systems accompanied by a certain level of intervention in the market. Recent years however have seen substantially different events taking place. The US dollar lost a lot of its strength which has seen calls for China to allow its currency to appreciate in the international currency market. This was however something in China’s interests as the US dollar was having a negative effect and China needed to maneuver so as to reposition its currency, possibly pegged to a basket of various major currencies. This would reduce the risk posed by possible fluctuations in the value of the US dollar in the international market. In July 2005, the Asian giant began to implement a policy change based on these considerations with the changing economic conditions of the world (Tian, 2007:1978-1979).

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