The Chinese Yuan is the currency issued by the People’s Bank of China as the economic currency. The Yuan is pegged to the U.S. dollar as the dominant currency in the international trade. China applies a managed floating exchange rate against the U.S. dollar. The currency appreciated against the US$ from 6.83 in 2009, to 6.33 in 2011, but the value has depreciated to 6.37 in 2015 (Kouretas & Papadopoulos, 2014). The currency is not freely convertible because of the restrictions on the conversion of units of the foreign currency of Yuan.
The China’s exchange rate policy is blamed by the United States, and countries in the Eurozone argue that the policy is manipulating the currencies at the expense of other economies. According to Kouretas and Papadopoulos (2014), the exchange rate policy is driven by the value of the Yuan against the U. S. Dollar switched in between the pegged regime. The argument against the exchange rate policy adopted by China focuses on increasing the country’s export. The controlled exchange rate adopted ensures that the value of the Yuan against the U.S. dollar does not appreciate at high rates, a situation that would reduce exports and increase imports to the Chinese economy. In fact, the exchange rate policy has enabled China to continue reporting a surplus balance of trade compared to the deficit reported by the U.S. over the years. In defense of the controlled exchange rate, the Chinese government through the People’s Bank of China states that the policy aims at controlling the internal financial stability.
According to Canadian Trade Commissioner Service (2010), the exchange rate control in China is in the shift from centrally managed to more flexible currency system. The Renminbi and the availability of foreign currencies on current account items and the introduction of State Administration of Foreign Exchange to set the exchange rate on capital accounts are the manifestations of the shift. In essence, State Administration of Foreign Exchange considers the state in the international market before setting the rates.