Show me the money : how currency manipulation promotes Chinese modernization.

Abstract

This study provides an answer to the complex question of why China manipulates its currency. The research attempts to explain how currency manipulation used as one of many tools can help propel a country toward modernization, but may correct for the negative effects of rapid development as well. The primary purpose of this study is to examine the effect of currency manipulation as one of many policy prescriptions for China's economic development. A second purpose of this study is to show how currency manipulation is a viable policy for China under current international law. China's currency manipulation strategy is studied from 1981-2011. Data was collected from the World Bank on a number of development indicators for China: Net development assistance received including ODA and UN assistance, trade exports, unemployment, and manufacturing as a percent of GDP, and gross national income. My model seeks to test my argument about Chinese modernization and offers empirical support for the contention that China manipulates to fund its modernization. My findings confirm my thesis: China manipulates its currency in order to rapidly modernize and it is not prohibited from doing so under international law. These results are consistent with previous findings on export-led growth and currency manipulation.