Chinese Foreign Currency Reserves Swell by Record Amount Article

Chinese Foreign Currency Reserves Swell by show Amount - Article ExampleThis article tries to take to task public alarm over the swelling foreign exchange reserve levels of China and how this contributes to the untaughts worsening inflation problem (Bradsher, 2011). This has to do with its effect on the renminbis exchange rate vis a vis the US dollar. A high level of militia causes the renminbi to appreciate against the dollar. The problem is this will make Chinas substantial exports more expensive thus, losing its competitive advantage. This then could lead to the loss of jobs by millions of people working in the export industry. This led to Chinas central banking concerns decision to keep the value of its currency low. To do this, it prints renminbi at a furious pace in order to buy the dollars and euros that come in through trade surpluses and foreign investment (Bradsher, 2011). However, this spawns a nonher problem. The additional renminbi issued causes the funds supply i n the country to rise even further. What was not discussed in the article is the direct impact of the level of money supply on inflation. A high level of money supply circulating in the economy causes aggregate demand to rise. This increased demand for goods and services is what pushes general prices to go up. feel at Chinas foreign reserve levels, in the third quarter of 2010, it increased by $194 million. In the fourth quarter, it jumped by $199 million to raise the total to $2.85 trillion. This increase was much larger than what economists had expected. During this time, China doubled its intervention in the currency markets to about $2 billion a day (Bradsher, 2011). And so, the countrys money supply was 19.7 percent higher in December than a year earlier. The increase in money supply though is not solely due to the central banks efforts to keep the value of the renminbi in check. Banking loans have also risen and measures taken by the central bank to slow down lending, primari ly by increasing bank reserve requirements have proven to be ineffective.