Abstract
This paper takes the US as an example and uses event study approach to analyze the political events in which the US pressured RMB exchange rate between July 22, 2005 and March 31, 2016 as well as the outcomes of such actions, trying to reveal the influence of such events during the appreciation and depreciation period of RMB. The conclusions are as follows: 1) The pressure from the United States did not play a significant role in promoting RMB appreciation since only 53.4% out of 116 events between July 22, 2005 and March 31, 2016 were successful; 2) In various political events that aim at imposing pressure between July 22, 2005 and March 31, 2016, the US Congress had more significant influence on RMB exchange rate than the US administrative sectors; 3) Judging from the number of events, RMB exchange rate hasn’t undergone obviously increased pressure from the US since its devaluation in 2014. However, unlike the situation in the appreciation stage, US administrative sectors were more influential than the Congress in the devaluation stage.
Highlights
After joining the World Trade Organization in 2001, China accumulates huge amounts of foreign exchange reserves through current-account surplus in foreign trade
The results indicated that the US political pressure showed no significant influence between July 1, 2005 and January 8, 2007 after other factors in the currency basket were controlled [7]
The events initiated by legislative branches mainly include US Congress’s motions and hearings in connection with RMB exchange rate; while the events initiated by administrative departments include Sino-US heads meetings, US Treasury Secretary’ s visits to China, reports on international economy and exchange rate policy, Strategic Economic Dialogue (SED) and Strategic and Economic Dialogue (S&ED) Conferences, as well as China-US Joint Commission on Commerce and Trade(JCCT)
Summary
After joining the World Trade Organization in 2001, China accumulates huge amounts of foreign exchange reserves through current-account surplus in foreign trade. The most prominent event is that the US Senate passed the “Currency Exchange Rate Oversight Reform Act of 2011” in October 2011, demanding the US government to investigate whether the exchange rates of major trading partners were undervalued It determined to impose punitive tariffs, aiming at pushing the appreciation of RMB. RMB has appreciated more than 25% against the US dollar since the reform of exchange rate system in 2005 until the end of 2013 Such substantial appreciation resulted from economic factors like strong economic growth over the years, continual accumulation of current-account surplus and inflows of foreign speculative capitals. This paper takes U.S as the primary pusher and uses event study approach to analyze the political events between July 22, 2005 and March 31, 2016 in which the United States put pressure on RMB exchange rate and outcomes of such actions, trying to reveal the influence of such events during the appreciation and depreciation of RMB
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