U.s. Dollar, China s Central Bank - 1397 Words

In order to contend with the US Dollar, China’s central bank has devalued the Yuan nearly 2% in August 2015.This bank’ policy was seemed to be a wave to the Chinese market, even the economic market all around the world, which brought a series of fluctuation and impact to the economy. Why china took this monetary action to face with the problem from the US dollar (What are the factors)? What is the (Positive or negative) influence will be aroused in the short term by this Chinese Yuan depreciation? What will be happen if this devaluation last in the further and what will be affected by this monetary policy in the long term? The following text will answer and analyse these three questions. Why china took this monetary step to against with Us†¦show more content†¦So it is easy to conclude that china’s economic markets are sluggish and weak, for these reasons, China should adopt this monetary strategy to deal with these series of problems, and keeping the healthy and steady growth in economic markets. On the other hand, China wanted to increase the monetary (Yuan) liquidity, further, wanted Yuan to become international reserve-currency. Broadly speaking, China hoped to consolidate its central position in the global economic markets. In conclusion, pulling the healthy and steady growth internally and pushing Chinese monetary (Yuan) circulate in the international economic market, externally are the two key factors drove China to devalue Yuan. In the short term, this depreciation action will bring varying degree of positive and negative impact in China and Global world. In the aspect of positive impact, Chinese aggregate demand will go up considerably in the short run. Aggregate demand is the total level of spending in the economy and consists of four elements: consumer spending (C), private investment (I), government expenditure on goods and services (G) and expenditure on exports (X) less expenditure on imports (M), Thus AD=C+I+G+X-M. (Sloman, Wride and Garratt, 2015). According to the Diagram 1 (Tradingeconomics.com, 2015), It is obvious to find that after July, 2015, China’s export expenditure increased significantly, especially in August when China secondly devalued Yuan,