In order to maintain an undervalued yuan to encourage a trade surplus, the Chinese government must buy United States dollars and increase the supply of yuan.

Question

Quizplus · Accepted Answer

When the Chinese government buys United States dollars, they increase the demand for dollars and decrease the supply of yuan. To maintain an undervalued yuan, they need to then increase the supply of yuan by printing more money or creating more credit, which can lead to inflation.

In Order to Maintain an Undervalued Yuan to Encourage a Trade