One consequence of China operating a crawling peg is that China
A)is accumulating U.S. dollar reserves.
B)will eventually run out of foreign reserves, and the yuan will depreciate.
C)will eventually run out of foreign reserves, and the yuan will appreciate.
D)will become more competitive in the long run.
E)is slowing its economic growth.

Question

Quizplus · Accepted Answer

China operating a crawling peg means that they are actively intervening in the foreign exchange market to keep their currency at a certain level. In order to do this, they need to buy or sell their currency as needed. This results in China accumulating foreign reserves, particularly U.S. dollar reserves, as the U.S. dollar is one of the currencies that they frequently trade with. Therefore, choice A is the correct answer.

One Consequence of China Operating a Crawling Peg Is That