How the Strong USD Affects China’s Inflation

How the Strong USD Affects China’s Inflation
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Introduction
The United States of America has always maintained a string economy for many decades and therefore it has the most dominant currency in the world. The world’s most used currency is also the world’s most reserved currency, meaning that central banks globally have large quantities of this currency at their disposal. When the USD strengthens, it often leads to depreciation in other countries. At the moment, Chinese Yuan has the fifth best average daily foreign exchange turnover as seen in the table below. This paper will discuss how the changes in the value of the USD strongly affect inflation rates in China.
Eun IFM PPT CH05.
Reasons
The value of USD affects import costs in China. The US dollar still dominates world reserves with 61.82% and the Chinese Yuan has 1.95% (Eun IFM PPT CH03). China is a major importer of goods and raw materials hence, as the Yuan weakens, the cost of imports ultimately rises substantially. Yang (2023) reported that the dollar index had risen to 0.301% in one month in China and this has halted many business activities. A large private developer like Country Garden had to delay its payments and Zhongrong International Trust Co. also had to renegotiate overseas payments for two companies (Lang, 2023). Commodities like oil and metals are commonly denominated in the USD hence, a strengthening USD correlated to a reduction