All of the following accurately describe China's currency peg EXCEPT
A) pegging against the dollar ensured that Chinese exporters faced stable prices on exports to the United States.
B) to support the exchange rate, the People's Bank of China had to buy large amounts of dollars with yuan.
C) the Chinese currency was allowed to depreciate moderately in the years preceding the financial crisis.
D) many economists argued that the Chinese currency was undervalued.

Question

Quizplus · Accepted Answer

The statement "the Chinese currency was allowed to depreciate moderately in the years preceding the financial crisis" is incorrect. In fact, China's currency peg to the US dollar meant that its currency was not allowed to fluctuate much at all, and therefore was not allowed to depreciate much either. In other words, China's currency was effectively pegged to the dollar at a fixed exchange rate, and did not experience much volatility or depreciation leading up to the financial crisis.

All of the Following Accurately Describe China's Currency Peg EXCEPT