Depreciation of the Us Dollar Impact on Chinese Economy

Background

The United States has been faced with an increasing current account deficit since the latter half of the 1990s. Since 2001, the US dollar began to decreased. In 2007 the subprime mortgage crisis broke out, gave a big hit to the U.S. financial system and the real estate market, further accelerate the depreciation of US dollar. From the current position, the US dollar is still go decline and depreciation of the US dollar have a considerable impact on economy.

Reasons

Low interest rates can not compensate the loss for expected inflation in the next few years

In response to the subprime mortgage crisis, the Fed made the decision of lowed the interest rates to 0.75 percentage, while expectations of further rate cuts are still there. Federal Reserve has repeatedly cut interest rates to hit the financial system to the injection of massive liquidity, which means that the risk of inflation is rising.

2.U.S. stocks market decline and capital withdrawal：In today's international foreign exchange market, the cross-border capital flows have a decisive impact on the exchange rate. From 1995 to 2001, the US dollar rose a strong upward, and during this periodis United States directly related to large capital inflows. The depreciation of the US dollar in summer 2002 with the same slow and out of international capital flows are closely related to increase.

3.Easing of monetary policy：As the stock market decline and economic recession, the Fed in 2001 took the unprecedented intensity of the anti-deflation policy,cut interest rates 11 consecutive times.

4.oil and gold prices reflect the decline in purchasing power dollars.

Impact on Chinese economy

一、Positive impact

1. Improve Chinese terms of foreign trade

For a long time, the price of Chinese exports is pretty low, deteriorating terms of trade. Depreciation of the dollar will lead to Chinese foreign currency export prices' up. To a certain extent, improve Chinese terms of foreign trade.　

2. Conducive to Chinese macro-control

Decline in external demand means that consumption and investment growth in GDP play a more important role, which is to promote the Chinese economy from external demand to domestic demand-driven change is beneficial.　

3. Conducive to expanding consumption, improve the quality of life of Chinese nationals

Depreciation of the dollar, the RMB appreciation to the people in dealing with other countries to bring more and more affordable. First, overseas travel, and shopping becomes more cheaper. Second, prices of imported goods from abroad decreased. The biggest beneficiaries are ours, international students.

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