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China's exchange rate impasse and the weak U.S. dollar

Ronald McKinnon and Gunther Schnabl

No 73, Working Papers from University of Leipzig, Faculty of Economics and Management Science

Abstract: In assessing Alexander Swoboda's great influence on economics, two themes stand out: the determinants of global inflation, particularly in the 1970s, and the choice of an exchange rate regime consistent with domestic monetary and fiscal policies. Although seemingly narrowly focused on China, our contribution to Alexander's fete straddles both themes. Since 2004, China has been backed into a situation where the renminbi is expected to go ever higher against the dollar, and this one-way bet has led to a loss of domestic monetary control. Combined with a more general flight from the U.S. dollar, the resulting monetary explosion in China contributes to the worldwide increase in primary commodity prices - with excess liquidity reminiscent of the global inflation generated by the weak dollar in the 1970s.

Keywords: Inflation; Exchange Rates; Macro Policies; Current Account Imbalances (search for similar items in EconPapers)
JEL-codes: E31 E61 F31 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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