For three decades China has followed an incremental approach in renminbi exchange rate reform.During this period,the exchange rate system has gone through five stages of evolution:i) a"basket peg"exchange ra...For three decades China has followed an incremental approach in renminbi exchange rate reform.During this period,the exchange rate system has gone through five stages of evolution:i) a"basket peg"exchange rate regime;ii) a dual-track system;Hi) exchange rate convergence;iv) a"unitary pegged"exchange rate regime;and v) a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Reforming the exchange rate formation mechanism is a complex engineering project influenced by numerous factors such as the economic development mode,industrial structure,basic economic system,market system condition,financial and macroeconomic policy system as well as the new advantages arising from opening-up initiatives.Since 2005,China has achieved substantial success in reforming the exchange rate formation mechanism but still faces a plethora of issues.To address these issues,China should strengthen the role of the market in the exchange rate formation process and gradually push for the free convertibility of the renminbi under the capital account.Amidst the raging global financial crisis,China should further adapt to the diversification of the international monetary system and aggressively proceed with renminbi regionalization and internationalization.展开更多
The exchange rate reform initiated on August 11,2015 is an important attempt by the PBoC to transform China's exchange rate regime from the "crawl-like arrangement" to a floating regime.However,after a t...The exchange rate reform initiated on August 11,2015 is an important attempt by the PBoC to transform China's exchange rate regime from the "crawl-like arrangement" to a floating regime.However,after a three-day experiment,the PBoC abandoned the original goal of the reform.Since then,the central bank has implemented a new exchange rate-setting mechanism.Under this mechanism,the central parity of the renminbi(RMB) against the US dollar is decided by the arithmetic average of the RMB exchange rate that keeps the index of a currency basket unchanged over the past 24 hours and the previous day's closing price of USD/CNY.Due to the introduction of the index of a currency basket,additional uncertainty has been introduced into the determination of the RMB exchange rate,because of the uncertainty of the dollar index(USDX).As a result,to a certain extent,the one-way bet on the RMB expectations is weakened.However,the current exchange rate formation mechanism cannot reverse the trend of devaluation of the RMB,nor can it eliminate depreciation expectations.Meanwhile,it hinders the effectiveness of central bank's independent monetary policy based on the domestic economic fundamentals.And also,the "two-way float" created by the new price-setting mechanism is artificial and has led to significant losses of foreign exchange reserve.The paper explains how the new price-setting mechanism works,and identifies the important features of the mechanism and its pros and cons.The paper argues that despite some advantages,the new exchange rate regime as a soft peg regime is not sustainable and the PBoC should stop foreign exchange market intervention as soon as possible.We hope that the PBoC can learn the lessons from the failure of the "August 11 reform" and accomplish the unaccomplished reform in an urgent manner.展开更多
China must expand opening up and develop foreign trade and economic cooperation to make the Chinese and international economies complementary and speed up the modernization drive. The most basic needs are to intensify...China must expand opening up and develop foreign trade and economic cooperation to make the Chinese and international economies complementary and speed up the modernization drive. The most basic needs are to intensify restructuring of the foreign trade system, set up rules and regulations in line with the展开更多
Based on this global environment, this essay will first present basic concepts of RMB exchange rate policy and its evolutionhistory, then discuss some important challenges from the global perspective that the Chinese ...Based on this global environment, this essay will first present basic concepts of RMB exchange rate policy and its evolutionhistory, then discuss some important challenges from the global perspective that the Chinese government meets in terms of the increasinglyundervalued exchange rate, thirdly argue that China cannot take a substantial appreciation, Finally discuss whether China should take a gradualappreciation by comparing its advantages and disadvantages.展开更多
In this paper, the actual exchange rate policy conducted by the Chinese government after the Chinese exchange rate system reform on 21 July 2005 is investigated. Also, the long-run effect is investigated, including th...In this paper, the actual exchange rate policy conducted by the Chinese government after the Chinese exchange rate system reform on 21 July 2005 is investigated. Also, the long-run effect is investigated, including the Balassa-Samuelson effect on the Chinese yuan. It was found that the Chinese government generated a statistically significant but small change in exchange rate policy during the sample period until 25 January 2006. It was not identified that the Chinese monetary authority is adopting the currency basket system because the change is too small in the economic sense. It is indicated that the Chinese government should take account of the productivity growth of countries composing the currency basket in order to operate a currency basket regime.展开更多
With balance of payments in China and the RMB exchange rate approaching the equilibrium level,political gaming of domestic interest groups rather than international political pressures plays a more important role in f...With balance of payments in China and the RMB exchange rate approaching the equilibrium level,political gaming of domestic interest groups rather than international political pressures plays a more important role in future bidirectional changes of the RMB exchange rate.From the perspective of political economics,this paper analyses the dynamics of exchange rate preferences of domestic interest groups and their role in the evolution of RMB exchange rate regimes.The findings show that interest groups and their exchange rate preferences do play a significant role in RMB exchange rate reforms,which implicates that it is necessary to take account of policy preferences and political gaming of interest groups in the determination and forecasts of the RMB exchange rate.展开更多
The international dollar standard is malfunctioning. Near-zero US short-term interest rates launch massive hot money outflows into emerging markets （EM） in Asia and Latin America. Each EM central bank buys dollars t...The international dollar standard is malfunctioning. Near-zero US short-term interest rates launch massive hot money outflows into emerging markets （EM） in Asia and Latin America. Each EM central bank buys dollars to prevent its currency from appreciating but loses monetary control. Despite some appreciation, average inflation in EMs is now much higher than in the old industrial economies and world commodity prices are bid up sharply. This inflation on the dollar ＇s periphery only registers in the US CPI with a long lag. However, the more immediate effect of the Fed＇s zero interest rate is to upset the process of bank intermediation within the American economy. Bank credit continues to decline while employment languishes. Therefore, constructive international monetary reform calls for the Fed to abandon its zero-interest rate policy, which is best done in cooperation with the European Central Bank, the Bank of Japan, and the Bank of England also abandoning their ultra low interest rates.展开更多
The Renminbi(RMB)exchange rate regime reform has gone through three stages roughly once every decade since 1994.It is a structural evolution through the unification of dual exchange rates,increased fluctuations and ce...The Renminbi(RMB)exchange rate regime reform has gone through three stages roughly once every decade since 1994.It is a structural evolution through the unification of dual exchange rates,increased fluctuations and central parity rate reform in response to the dynamic macro environment in China and abroad.This paper unpacks leading and supporting reforms for each stage and reviews the effects.The reform has developed historical experience in adopting progressive strategies,avoiding sharp exchange rate fluctuations in the near term,maintaining appropriate capital controls,and guaranteeing the reform through domestic structural reforms.Achieving a free-floating exchange rate will be the ultimate goal,but it will not be made easily in the short run.During the transitional period,it is recommended that an annual target zone for RMB's effective exchange rate be arranged for the CFETS currency basket,along with necessary capital controls.展开更多
This paper constructs an RMB/USD exchange rate index and a basket currency exchange rate index. The correlation maximization of the RMB/USD and the basket currency index may determine the weight and quantity of the ba...This paper constructs an RMB/USD exchange rate index and a basket currency exchange rate index. The correlation maximization of the RMB/USD and the basket currency index may determine the weight and quantity of the basket currency. The currency basket indicates that the weight of the USD is highest, whereas that of the GB Pound is the lowest. Our currency basket has a high linear dependence on that of the central bank. We found that the RMB/USD and currency basket indices have a long-term co-integration relationship according to the optimal currency weights. The results of the error-correcting model manifest as the RMB/USD exchange rate deviates from the long-term equilibrium level, wherein 76.3% will be corrected. This paper checks the prediction capacity, which indicates the good fit of the model. By using the Granger causality test the findings show that the People＇s Bank of China adjusts the RMB/USD exchange rate with reference to the currency basket.展开更多
Since 2000, the focus of the study of the RMB ex change rate has transferred from debate on whether it should appreciate or depreciate to the overall planning and the envisaged improvement of the RMB exchange rate reg...Since 2000, the focus of the study of the RMB ex change rate has transferred from debate on whether it should appreciate or depreciate to the overall planning and the envisaged improvement of the RMB exchange rate regime.展开更多
Introduction of new trading model has multiple significance China's central bank invited public bidding among 10 major domestic commercial banks to carry out one-year-long currency swap transactions last November....Introduction of new trading model has multiple significance China's central bank invited public bidding among 10 major domestic commercial banks to carry out one-year-long currency swap transactions last November. This move, according to Zuo Xiaolei, Chief Economist of China Galaxy Securities Co. Ltd., not only enables financial derivatives to become an operational instrument for implementing monetary policy, but also represents another action of the marketization of the exchange rate regime after an ear...展开更多
This paper reviews the issues involved in moving towards greater exchange rate flexibilityand capital account liberalization in China. A more flexible exchange rate regime wouldallow China to operate a more independen...This paper reviews the issues involved in moving towards greater exchange rate flexibilityand capital account liberalization in China. A more flexible exchange rate regime wouldallow China to operate a more independent monetary policy, providing a useful bufferagainst domestic and external shocks. At the same time, weaknesses in China’s financialsystem suggest that capital account liberalization poses significant risks and should be alower priority in the short term. This paper concludes that greater exchange rate flexibilityis in China’s own interest and that, along with a more stable and robust financial system, itshould be regarded as a prerequisite for undertaking a substantial liberalization of thecapital account.展开更多
This paper examines structural changes in China s exchange rate mechanism.For this purpose,we propose a predictive model incorporating three factors that influence the central parity rate:a smoothing factor,a market f...This paper examines structural changes in China s exchange rate mechanism.For this purpose,we propose a predictive model incorporating three factors that influence the central parity rate:a smoothing factor,a market factor,and a basket factor.We first apply the model to analyze the effects of 12 exchange rate reforms since 2005,treating these reforms as predetermined structural breaks.Among other results,we find that the main impact of introducing a“counter-cyclical factor”is to weaken the role of the basket factor.We estimate structural breaks in data,assuming that the number and dates of breaks are unknown,and we find that,although the majority of estimated breaks occur within the neighborhood of exchange rate reforms,there are breaks due to other external shocks such as the escalation of the China-US trade conflict in May 2019.It is suggested that our model may be used to guide future currency reforms in China.展开更多
文摘For three decades China has followed an incremental approach in renminbi exchange rate reform.During this period,the exchange rate system has gone through five stages of evolution:i) a"basket peg"exchange rate regime;ii) a dual-track system;Hi) exchange rate convergence;iv) a"unitary pegged"exchange rate regime;and v) a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Reforming the exchange rate formation mechanism is a complex engineering project influenced by numerous factors such as the economic development mode,industrial structure,basic economic system,market system condition,financial and macroeconomic policy system as well as the new advantages arising from opening-up initiatives.Since 2005,China has achieved substantial success in reforming the exchange rate formation mechanism but still faces a plethora of issues.To address these issues,China should strengthen the role of the market in the exchange rate formation process and gradually push for the free convertibility of the renminbi under the capital account.Amidst the raging global financial crisis,China should further adapt to the diversification of the international monetary system and aggressively proceed with renminbi regionalization and internationalization.
文摘The exchange rate reform initiated on August 11,2015 is an important attempt by the PBoC to transform China's exchange rate regime from the "crawl-like arrangement" to a floating regime.However,after a three-day experiment,the PBoC abandoned the original goal of the reform.Since then,the central bank has implemented a new exchange rate-setting mechanism.Under this mechanism,the central parity of the renminbi(RMB) against the US dollar is decided by the arithmetic average of the RMB exchange rate that keeps the index of a currency basket unchanged over the past 24 hours and the previous day's closing price of USD/CNY.Due to the introduction of the index of a currency basket,additional uncertainty has been introduced into the determination of the RMB exchange rate,because of the uncertainty of the dollar index(USDX).As a result,to a certain extent,the one-way bet on the RMB expectations is weakened.However,the current exchange rate formation mechanism cannot reverse the trend of devaluation of the RMB,nor can it eliminate depreciation expectations.Meanwhile,it hinders the effectiveness of central bank's independent monetary policy based on the domestic economic fundamentals.And also,the "two-way float" created by the new price-setting mechanism is artificial and has led to significant losses of foreign exchange reserve.The paper explains how the new price-setting mechanism works,and identifies the important features of the mechanism and its pros and cons.The paper argues that despite some advantages,the new exchange rate regime as a soft peg regime is not sustainable and the PBoC should stop foreign exchange market intervention as soon as possible.We hope that the PBoC can learn the lessons from the failure of the "August 11 reform" and accomplish the unaccomplished reform in an urgent manner.
文摘China must expand opening up and develop foreign trade and economic cooperation to make the Chinese and international economies complementary and speed up the modernization drive. The most basic needs are to intensify restructuring of the foreign trade system, set up rules and regulations in line with the
文摘Based on this global environment, this essay will first present basic concepts of RMB exchange rate policy and its evolutionhistory, then discuss some important challenges from the global perspective that the Chinese government meets in terms of the increasinglyundervalued exchange rate, thirdly argue that China cannot take a substantial appreciation, Finally discuss whether China should take a gradualappreciation by comparing its advantages and disadvantages.
文摘In this paper, the actual exchange rate policy conducted by the Chinese government after the Chinese exchange rate system reform on 21 July 2005 is investigated. Also, the long-run effect is investigated, including the Balassa-Samuelson effect on the Chinese yuan. It was found that the Chinese government generated a statistically significant but small change in exchange rate policy during the sample period until 25 January 2006. It was not identified that the Chinese monetary authority is adopting the currency basket system because the change is too small in the economic sense. It is indicated that the Chinese government should take account of the productivity growth of countries composing the currency basket in order to operate a currency basket regime.
基金This work was supported by the National Social Science Fund of China(15BGJ034).
文摘With balance of payments in China and the RMB exchange rate approaching the equilibrium level,political gaming of domestic interest groups rather than international political pressures plays a more important role in future bidirectional changes of the RMB exchange rate.From the perspective of political economics,this paper analyses the dynamics of exchange rate preferences of domestic interest groups and their role in the evolution of RMB exchange rate regimes.The findings show that interest groups and their exchange rate preferences do play a significant role in RMB exchange rate reforms,which implicates that it is necessary to take account of policy preferences and political gaming of interest groups in the determination and forecasts of the RMB exchange rate.
文摘The international dollar standard is malfunctioning. Near-zero US short-term interest rates launch massive hot money outflows into emerging markets （EM） in Asia and Latin America. Each EM central bank buys dollars to prevent its currency from appreciating but loses monetary control. Despite some appreciation, average inflation in EMs is now much higher than in the old industrial economies and world commodity prices are bid up sharply. This inflation on the dollar ＇s periphery only registers in the US CPI with a long lag. However, the more immediate effect of the Fed＇s zero interest rate is to upset the process of bank intermediation within the American economy. Bank credit continues to decline while employment languishes. Therefore, constructive international monetary reform calls for the Fed to abandon its zero-interest rate policy, which is best done in cooperation with the European Central Bank, the Bank of Japan, and the Bank of England also abandoning their ultra low interest rates.
基金funded by the Center for Modern Financial Studies under Shanghai Jiao Tong University,presents the latest progress in CASS's innovation project on Development Trends and Interconnections of Global and Chinese Financial Markets.
文摘The Renminbi(RMB)exchange rate regime reform has gone through three stages roughly once every decade since 1994.It is a structural evolution through the unification of dual exchange rates,increased fluctuations and central parity rate reform in response to the dynamic macro environment in China and abroad.This paper unpacks leading and supporting reforms for each stage and reviews the effects.The reform has developed historical experience in adopting progressive strategies,avoiding sharp exchange rate fluctuations in the near term,maintaining appropriate capital controls,and guaranteeing the reform through domestic structural reforms.Achieving a free-floating exchange rate will be the ultimate goal,but it will not be made easily in the short run.During the transitional period,it is recommended that an annual target zone for RMB's effective exchange rate be arranged for the CFETS currency basket,along with necessary capital controls.
基金The author would like to thank the research support from the National Nature Science Foundation of China （70673011, 71173042） and the National Social Science Fund Major Projects （11＆ZD018）, Later Grants from the Chinese Ministry of Education （12JHQ030） and Research and Innovation Projects of the Shanghai Municipal Committee of Education （13ZS010）. The author is deeply indebted to Professor Thomas C. Chiang for his advice and useful help in the completion of this paper, and also acknowledges the comments and suggestions of two anonymous referees. Any remaining errors are my own responsibility.
文摘This paper constructs an RMB/USD exchange rate index and a basket currency exchange rate index. The correlation maximization of the RMB/USD and the basket currency index may determine the weight and quantity of the basket currency. The currency basket indicates that the weight of the USD is highest, whereas that of the GB Pound is the lowest. Our currency basket has a high linear dependence on that of the central bank. We found that the RMB/USD and currency basket indices have a long-term co-integration relationship according to the optimal currency weights. The results of the error-correcting model manifest as the RMB/USD exchange rate deviates from the long-term equilibrium level, wherein 76.3% will be corrected. This paper checks the prediction capacity, which indicates the good fit of the model. By using the Granger causality test the findings show that the People＇s Bank of China adjusts the RMB/USD exchange rate with reference to the currency basket.
文摘Since 2000, the focus of the study of the RMB ex change rate has transferred from debate on whether it should appreciate or depreciate to the overall planning and the envisaged improvement of the RMB exchange rate regime.
文摘Introduction of new trading model has multiple significance China's central bank invited public bidding among 10 major domestic commercial banks to carry out one-year-long currency swap transactions last November. This move, according to Zuo Xiaolei, Chief Economist of China Galaxy Securities Co. Ltd., not only enables financial derivatives to become an operational instrument for implementing monetary policy, but also represents another action of the marketization of the exchange rate regime after an ear...
文摘This paper reviews the issues involved in moving towards greater exchange rate flexibilityand capital account liberalization in China. A more flexible exchange rate regime wouldallow China to operate a more independent monetary policy, providing a useful bufferagainst domestic and external shocks. At the same time, weaknesses in China’s financialsystem suggest that capital account liberalization poses significant risks and should be alower priority in the short term. This paper concludes that greater exchange rate flexibilityis in China’s own interest and that, along with a more stable and robust financial system, itshould be regarded as a prerequisite for undertaking a substantial liberalization of thecapital account.
基金the Natural Science Foundation of China(No.71673183).
文摘This paper examines structural changes in China s exchange rate mechanism.For this purpose,we propose a predictive model incorporating three factors that influence the central parity rate:a smoothing factor,a market factor,and a basket factor.We first apply the model to analyze the effects of 12 exchange rate reforms since 2005,treating these reforms as predetermined structural breaks.Among other results,we find that the main impact of introducing a“counter-cyclical factor”is to weaken the role of the basket factor.We estimate structural breaks in data,assuming that the number and dates of breaks are unknown,and we find that,although the majority of estimated breaks occur within the neighborhood of exchange rate reforms,there are breaks due to other external shocks such as the escalation of the China-US trade conflict in May 2019.It is suggested that our model may be used to guide future currency reforms in China.
