Question

What are some of the disadvantages of China’s pegging the yuan to the dollar?

Short answer

The disadvantage of China's pegging the Yuan to the dollar is that China can not pursue its own independent monetary policy and use it to retort to domestic shocks that are independent of these hitting the anchor country.

Step-by-step solution

Concept Introduction

Pegging refers to the monetary policy or strategy that has targeting the worth or fixing the worth of the domestic currency to the foreign currency similar to the gold standard. The changes within the value of the foreign currency will influence similar change within the targeted or domestic currency.

Explanation of Solution

Another disadvantage of pegging is that it'll leave hospitable speculative attacks on China's currency. Same changes would happen to the China's currency because it will happen to the U.S. Another disadvantage of pegging is that it can weaken the accountability of policymaker, particularly in emerging market countries among which China is additionally one. It emphasis the fixed rate system and benefits of fluctuate exchange system can't be achieved.