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China: The Correct Sequence Should be Inflation First, Appreciation Second

Geng Xiao argues that China should adopt a policy of “inflation first, currency appreciation second.” Both factors are needed to help balance China’s economy.

Adjusting the exchange rate alone as a response to American pressure will only produce short term gains, while increasing inflation alone cannot rebalance currency disparities without posing serious risk to the economy at large. Development of China’s financial sector would help maintain a stable rate of inflation, and prepare the Chinese economy for measured currency revaluation.

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