For Basket Currency Regime
Thesis Statement
Any country can choose on whether to or not to peg their respective currencies on another different currency. This decision is influenced by various factors. Pegging a currency against another currency is driven by some reasons and will have several benefits and disadvantages. The other alternative is the use of basket currency regime in the country. This has some costs, benefits and constrains which need to be considered . There are several currency regime blocks that will always influence these decisions.
In China, the Chinese Yuan was strictly pegged on the US dollar for a very long time. There were several factors that informed this decision for all these period. The US dollar has been the main international trading currency for a long period of time. China had various reasons to drop the strict pegging of the Yuan on the dollar and decide to peg it against several currency baskets. This decision will bring several benefits to China and can also have some disadvantages on the Chinese economy. The US government will have the effect of this change either positively or negatively on its dollar standings on the world trading platform.
The Chinese economy comparison to the US economy is very important in this emerging trading decision. The growth of the two economies will have a great influence on the general world. The future prediction of the growth of the two countries will also assist in the estimation of the effect this sudden shift will have on the two countries. It will be important also to look at the acceptability of the Yuan in the new market that is dominated with the dollar and this will determine whether the positive effects the decision predicted in the market will be achieved. The motivation for this decision is important to be considered.
References
Ogawa, E. I. (2015). Cost, Benefits, and Constraints of the Basket Currency Regime. Tokyo: Hitotsubashi University.
Worstall, T. (2015, 12 12). China Drops The Yuan's Strict Peg To The US Dollar. Retrieved May 8, 2016, from Forbes/Opinion: http://www.forbes.com/sites/timworstall/2015/12/12/china-drops-the-yuans-strict-peg-to-the-us-dollar/#6adef437461e
