China has been able to devalue their currency through a fixed rate regime. With the fixed system, the Central Bank of China determines the exchange rate by keeping the value of the currency fixed against the dollar (Gough, 2016). Besides, in this regime, the government losses the autonomous monetary policy since it must keep intervening in the foreign exchange rate to maintain the exchange rate at the officially set level. China has been able to keep the dollar price high and Yuan low through an easy way of buying dollars from the open market (Gough, 2016). For instance, China has a huge trade surplus; therefore, it can afford to buy dollars in the open market thus keeping the demand for dollars high and push its prices up relative to Yuan. China accumulates dollar assets and sells Yuan to lower the price of the local currency (Smith, 2016). The central bank defends the Yuan. China sets an exchange rate that they believe is defensible against outside speculations and the central bank uses its decreasing foreign exchange currency reserve to fix the required price. For instance, the Yuan has depreciated moderately to around 6.5 to the USD (Smith, 2016).

References

Gough, N. (2016, Sept. 30). China manipulates its currency, but the in the way Trump claims. The New York Times. Retrieved from https://www.nytimes.com/2016/10/01/business/dealbook/china-trump-yuan-devaluation.html?_r=0

Smith, H.C. (2016, Feb. 19). China’s currency devaluation is just getting started. Business Insider. Retrieved from http://www.businessinsider.com/china-currency-devaluation-just-getting-started-2016-2

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