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Assume the chinese government abandons

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Chinese peg, policy and effects

China pegs the yuan to the US dollar at 8.3 yuan per dollar. Suppose that this is above the equilibrium level of the dollar in the foreign exchange market. What must the People's Bank of China do to maintain the peg? Next suppose the Chinese government abandons the peg and allows the yuan to float. With the help of a graph of the foreign exchange market from the Chinese perspective-where China is the home country so e has the dimensions of yuan/$-explain what will happen. What would be the effect on Chinese imports and exports?

 

Reference no: EM1336657

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