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CHINA'S EXCHANGE RATE APPRECIATION IN THE LIGHT OF THE EARLIER JAPANESE EXPERIENCE
Author(s) -
McKin Ronald
Publication year - 2006
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2006.00316.x
Subject(s) - economics , deflation , currency , china , creditor , renminbi , monetary economics , liberian dollar , current account , exchange rate , market liquidity , liquidity trap , balance of payments , wage , macroeconomics , monetary policy , debt , liquidity risk , market economy , finance , political science , law
. For creditor countries such as China on the periphery of the dollar standard with current account surpluses, foreign mercantile pressure to appreciate their currencies and become more flexible is misplaced. Just the expectation of variable exchange appreciation seriously disrupts the natural tendency for wage growth to balance productivity growth and thus worsens the (incipient) deflation that China now faces. It could create a zero‐interest liquidity trap in financial markets that leaves the central bank helpless to combat future deflation arising out of actual currency appreciation, as with the earlier experience of Japan.