The Political Economy Of The Exchange Rate

Under the circumstance of globalization, exchange rate, especially of greatpowers, plays an unique role in international political and economic relations. Greatpowers contribute larger share to world economy, as a result, their exchange rate donot only exert influence on domestic economic development but also on the economyof other countries as well as the world. This also applies to China. Since2002, thedebate over the level of the RMB currency has been heating up for years. Thereemerge a lot of issues on RMB, such as whether RMB has been undervalued? Howmuch is RMB undervalued if undervalued RMB exists? Whether Beijing financialauthorities should let RMB appreciate or not and how much should it be appreciated?Actually, behind these arguments lie in the interplay of U.S. interest groups, congressas well as the president and his administration. Interest group lobbying has broughtRMB into sharp focus of the American public opinion and caused a list of activities ofcongress and administrative authority; The U.S. congress is the main driver of theRMB appreciation. Congressmen make use of legislative measures to interfere withRMB exchange rate on purpose of reaching their own political aims and establishfavorable public opinion and political influence for their re-election.U.S.administrative authority plays a vital role on the internal and external balance aboutRMB exchange rate. Besides the political interests as well as its response to therequirement of interest group and congress, its attitude toward RMB also depends onsome essential factors such as macroeconomic situation, global strategy and so on. Inaddition, the debate on RMB exchange rate also reflects the process of the gameplayed by China and U.S. on an international level. In order to provide a deeperdemonstration of U.S. influence caused by different domestic powers on RMBexchange rate policy and put forward some countermeasures on what should China doto deal with this hot issue. This article uses Currency Reform for Fair Trade Actwhich was passed by the House of Representative in Obama administration as a casestudy for a better explanation. In sum, this article conducts an international political economics study of RMBcurrency on the basis of the U.S. perspective. By analysis the interaction of check andbalance relation among interest group, congress and the U.S. administration, it isproved that RMB currency policies of the U.S. are the game results of differentpolitical actors with specific political and economic aims.