Fixed Exchange Rate

balance of payments accounts

accounts for its payments to and its receipts from foreigners.

international transaction involves two parties, and each transaction enters the accounts twice:

once as a credit (+) and once as a debit (–).

balance of payments accounts are separated into two broad accounts

current and finanical account

current account

Accounts for flows of goods and services.

financial account

Accounts for net flows of financial assets (private sector + government).

When reportin- current account

Credits – Debits

When reporting - financial account

Debits - Credits

e financial account measures how

the net lending to or borrowing

China’s Fixed Exchange Rate in the 2000s

China fixed its currency low over the 2000s (despite the pressure to appreciate) to encourage exports to the United States

What the China did over its entry to WTO

Chinese government (did not purchase US goods but) purchased US financial assets (US T-bills) to create extra supplies for its currency to avoid appreciating its currency