Question

The effect of China’s exchange rate movements on U.S trade:

a.Status of change in RMB

b.Status of goods trade between China and U.S

Answer 1

a)variation in the determinants of the renminbi’s daily fixing since the August 2015 exchange rate reform maps on to variation in the comovement of the renminbi with regional and other emerging market currencies. We first identify three post-reform periods of RMB management: transition, basket management and countercyclical management. The co-movement with regional and Latin American currencies peaked in the basket period, when the daily fixing was most predictable and multilateral. By contrast, the decline in co-movement in the countercyclical management period between May and July 2017 leaves it premature to speak of a renminbi zone. The dependence of the co-movements on renminbi management has important implications for renminbi internationalisation.

b)The balance of trade influences currency exchange rates through its effect on the supply and demand for foreign exchange. ... In contrast, if a country imports more than it exports, there is relatively less demand for its currency, so prices should decline. In the case of currency, it depreciates or loses value.