Foreign Reserves in China and Their Effect on the Exchange Rate between USD and CNY

Abstract

Two objectives were pursued with this quantitative study. First, to understand whether the Chinese Foreign Exchange Reserves affected the US-Dollar (USD) exchange rate and the Chinese Yuan (CNY). The focus was mainly on the margin of fluctuations in the exchange rate between both currencies from 2000 until completed the calendar year of 2018. The second objective was to determine whether the exchange rates were within or beyond the control of the Chinese Federal Government and its monetary policy-makers or not. At least 100 sets of secondary data from 2010 until the completion of the calendar year 2018 were retrieved from the verified, professional Trading Economics websites of the United States Federal Reserve Bank. The data sets were analyzed by applying multiple linear regression analysis and using SPSS 24.0 software. The causalities between foreign exchange rates, foreign reserves, and the dependent variables USD and CNY were expressed using descriptive statistics, the coefficients model, and scatter plots as quantitative tools. Findings of the financial relationship analysis between the United States and China revealed that the Chinese Foreign Exchange Reserves in USD affected the exchange rate between USD and CNY. The study was affected by the limitation that the secondary data used for the analysis came from an existing source and was not created by the researcher. Nevertheless, the risk was minimized, as the Federal Reserve Bank was a verified and trustworthy source.