China has emerged as the world's largest surplus economy; indeed, by 2007-08 the size of its surplus relative to its GDP was of a magnitude unprecedented for a large trading economy. This development is especially surprising since in the first
25 years of economic reform China's trade and current account surpluses were quite small by East Asian standards, averaging less than 2 percent of GDP.
This book provides a comprehensive analysis of the key economic challenges facing the Chinese authorities in light of the still undervalued exchange rate, the large build-up
of foreign exchange reserves, the global economic crisis, and more recently the sharp decline in economic growth. It analyzes the implications of China's exchange rate policy for the effectiveness of monetary policy, the transition to a commercially oriented banking system, the evolving structure of output and demand, and the risk of protectionism abroad. The study takes account of the significant real effective appreciation of the renminbi over the past 15 months and contrasts the pros and cons of a "stay the course" policy with those of a bolder, "three stage" approach that would seek to maintain recent progress and further correct the undervaluation of the renminbi.
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About the Author
Morris Goldstein, nonresident senior fellow, has held several senior staff positions at the International Monetary Fund (1970–94), including Deputy Director of its Research Department (1987–94). From 1994 to 2010, he held the Dennis Weatherstone Senior Fellow position at the Peterson Institute. He has written extensively on international economic policy and on international capital markets.