The Advantages And Disadvantages Of Foreign Exchange Rate In China's Economy
China, currently has the strongest economy in the world with positive balance of payment since mid of 1990s, its foreign exchange reserve also has been increasing drastically at the same time from around 150 billion USD to 1600 billion USD in 2007, more than 10 times in less than 20 years (Research Institute of Economy, Trade & Industry, 2008). Such a large economy scale with export and import that will influence balance of payment is important to the country and exchange rate of its currency can alter the amount of export and import by implementing either fixed or flexible exchange rate to help the country to achieve its purpose. Both exchange rates have its advantages and disadvantages based on which country that implies it, in other words there is no single exchange rate regime is best for all countries in all circumstances. Fixed exchange rate is an exchange rate regime that fixes its own exchange rate to a country or a basket of countries so when the currencies of its reference appreciate, its own currency will appreciate too, vice versa. The best example of fixed exchange rate is dollarization, it fixed United State Dollar to its currency to maintain the value of its own currency. Fixed exchange rate helps to avoid currency fluctuation which reduced the risk in international trade where traders are encourages trading more goods and services in and out of the country, while low transaction cost and stable interest rate also attract foreign investors to bring in more
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