China's Exchange Rate Policies and U.S. Financial Markets

Thomas Mertens and Patrick Shultz

FRBSF Economic Letter, 2017

Abstract: Exchange rate stabilization or currency ?pegs? are among the most prevalent interventions in international financial markets. Removing a peg to a safer currency can make the home currency more risky and less attractive to investors. When a country with market influence removes its peg from a safer country, the risk associated with holding either currency can be affected. Analyzing the effects of a scenario that changes a peg of the renminbi from the U.S. dollar to a basket of currencies suggests that China?s interest rates increase while U.S. interest rates decrease.

Date: 2017
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