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Demanding DevaluationExchange Rate Politics in the Developing World$
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David A. Steinberg

Print publication date: 2015

Print ISBN-13: 9780801453847

Published to Cornell Scholarship Online: August 2016

DOI: 10.7591/cornell/9780801453847.001.0001

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Why China Undervalues Its Exchange Rate

Why China Undervalues Its Exchange Rate

The Domestic Politics of Currency Manipulation

(p.78) 3 Why China Undervalues Its Exchange Rate
Demanding Devaluation

David A. Steinberg

Cornell University Press

China's undervalued exchange rate has affected the world economy in numerous ways and is among the most contentious issues in contemporary international politics. This chapter examines whether the conditional preference theory helps explain exchange rate politics in China between 1993 and 2009. It begins with an overview of China's political and economic system, describing the organization of the labor and financial system and the power of the manufacturing sector. It then examines how politics shaped exchange rate policy in China between 1993 and 2009. The third section summarizes key findings and explains how they shed light on the relationship between domestic politics and undervalued exchange rates more broadly. It is shows that lobbying by the powerful manufacturing sector is a major reason why China kept its exchange rate undervalued for most of the 1993–2009 period.

Keywords:   China, Chinese exchange rate, exchange rate policy, monetary policy, conditional preference theory, undervalued exchange rate, manufacturing sector

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