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QUESTION
Suppose China wishes to peg the Chinese Yuan to the US dollar at $0.20/Yuan. But, because of foreign funds flowing into China, the Yuan appreciates.
Suppose China wishes to peg the Chinese Yuan to the US dollar at $0.20/Yuan. But, because of foreign funds flowing into China, the Yuan appreciates. How can the People’s Bank of China (China’s central bank) maintain the pegged exchange rate? Is the Bank of China limited by its foreign exchange holdings in maintaining the peg?
