What are the Reasons for Keeping Renminbi Stable？

Inrecentdays,revaluationoftheChinesecurrency,the renminbi,hasbeenthefocusamongmanyeconomistsaswellas manyofficials.Muchdifferentfromthesituationin1997-1998 whenthefinancialcrisisbrokeoutinsouth-eastAsia,where mostofothercountries,especiallyAsiancountries,soworried aboutthepossibilitiesofrenminbi’ssharpdepreciation,andthis time,onlyfiveyearslater,muchofthedebateontherevalua tionoftheChineserenminbihasthefocusedonhowanapprecia tiontherenminbiwouldhelpgrowthintheG-3,inparticular theUScur…

What are the Reasons for Keeping Renminbi Stable?

Most of the economists agree that renminbi is undervalued, while as for how much it should be appreciated, substantial disagreements exists. At the beginning of this year, analysts abroad tended to think that the renminbi should increase its value by 10% to 15%. The most recent estimates are that the renminbi should appreciate 20% to 30%. This shows the great upward pressure on the renminbi. Since it was devalued in 1994, China' s currency has been kept at a constant nominal level to the US dollar despite china' s rapid economic growth, rising productivity, strong exports, and massive foreign direct investments all factors that normally cause a currency to appreciated, moreover, the resulting build - up of central bank foreign reserves in itself is sufficient to justify renminbi appreciation. The reasons for keeping Renminbi stable is discussed in this paper.