China's exchange rate polic

Given the avowed reluctance of the Chinese authorities to let the yuan appreciate relative to the U. S. dollar, and the weakness of the U. S. dollar in recent years in response to America’s growing external deficits, China’s real effective exchange rate is currently weaker than it was at the beginning of the decade (Chart 3). [...] The domestic content of China’s exports has increased and its products have become more sophisticated following years of significant investment and technological upgrades.6 The rising sophistication of China’s exports points to a greater sensitivity of its exports and trade balance to foreign demand and price fluctuations than in the past, suggesting the need to revisit the elasticity pessimism of [...] The authors note that the uncertainty regarding the required appreciation reflects, in part, the difficulty in estimating the sensitivity of Chinese exports and imports to exchange rate movements. [...] Part of the reason stems from the lessons learned from the Asian crisis, notably that the stability of the yuan not only contributed to economic and financial stability in China but also probably helped to contain the further spread of the crisis (Zhou 2003). [...] For instance, Japan’s experience in the wake of the collapse of the Bretton Woods system in the 1970s, and the experiences of Latin American countries during the debt crises of the 1980s, demonstrate that capital controls have generally not 13.