Assessing the Effects of Trade-Related Exchange Rate Fluctuations on Credit Availability and Financial Stability in China
DOI:
https://doi.org/10.70112/ajms-2024.13.1.4236Keywords:
Trade Wars, Exchange Rate Volatility, Credit Market, Chinese Yuan (CNY), Financial StabilityAbstract
The recent trade wars between China, the United States, and Australia have significantly impacted global economic dynamics. As China relies heavily on international trade, these conflicts have led to fluctuations in the Chinese yuan (CNY), straining financial stability. This study aims to analyze the influence of this volatility in the exchange rate on China’s credit market, focusing on how fluctuations in the CNY against the U.S. dollar and Australian dollar have influenced credit availability, loan demand, and overall financial stability. The study employs a mixed-methods approach, combining an autoregressive distributed lag (ARDL) model. The findings reveal a strong correlation between exchange rate volatility and credit market conditions, with the depreciation of the CNY during trade tensions leading to tighter credit conditions and higher borrowing costs. Chinese banks responded by tightening lending standards and increasing interest rates, which helped mitigate some of the adverse effects. However, the ongoing nature of trade tensions underscores the need for continued vigilance and adaptive strategies, including economic diversification, strengthening financial infrastructure, and enhancing policy coordination to ensure long-term resilience and stability in China’s financial system.
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