Quantitative easing and the renminbi

THE US Federal Reserve's policy of quantitative easing is reducing the value of the dollar relative to other currencies that have floating exchange rates. But what does the new Fed policy mean for one of the most important exchange rates of all that of the renminbi relative to the dollar and to other currencies?

The effect of quantitative easing on exchange rates between the dollar and the floating-rate currencies is a predictable result of the Fed's plan to increase the supply of dollars. The rise in the volume of dollars is causing the value of each dollar to fall relative to these currencies, whose volume has remained constant or risen more slowly.