Abandoning the Dollar Peg Over Essay

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Total Length: 1900 words ( 6 double-spaced pages)

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(Eichengreen 2010)

Clearly, the article that was written by Eichengreen (titled 27 Up the Implication of China Abandoning its Dollar Peg), is highlighting how China needs to change their current approach. This is because numerous studies have shown; that those nations that remove their peg against the dollar will see consistent economic growth after this occurs. This is due to the fact that market forces are able to make adjustments to the financial system (which allows them to function smoothly). Evidence of this can be seen with the average rate of growth in nations who embraced this policy on year later with a 4.7% GDP rate. This is important, because it is showing that despite the fears that China has about what will happen, the reality is that it will have positive impact on the economy. As, the nation is able to more effectively adjust to changes on a real time basis; which helps to fuel even more growth down the road.

However, Eichengreen believes that this kind of approach should be taken over a series of different steps.

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The reason why, is because the imbalances in China's situation are so extreme that they could cause sudden shifts in the economy. To deal with these issues, the author believes that the peg should be removed through a series of two different steps. Once this takes place, is when this will address the imbalances and prepare the markets for this kind of move in the future. This is when the negative impacts will be reduced, by giving everyone a chance to prepare for the changes in advance. Once this occurs, it will cause China's GDP growth to decline slightly, while helping the economy to make the necessary adjustment. This is the point that China will be able to have more consistent and balanced growth that will transform the nation......

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