The mystery of the Chinese exchange rate regime: basket or no basket? (original) (raw)
Related papers
On the Chinese Exchange Rate Regime: An Attempt to Flexibility During 2015
2019
This study will demonstrate, through an econometric and asset allocation approach, if and how the Chinese exchange rate regime was changing during 2015. Particularly, China to improve its exchange rate formation system implemented, during July and August 2015, three depreciation as a step toward a market-oriented exchange rate. This situation, along with the new right of the RMB to be an international currency in SDR should generate a loss of weight about the USD in the Chinese basket peg. For this reason, moving from Frankel-Wei's basic econometric model-but with some appropriate changes-our objective is to verify if the Chinese monetary policy about the exchange rate has affected the inner balance of the Chinese basket-peg leading it towards a flexible exchange rate regime.
Dynamic Transition of Exchange Rate Regime in China
China & World Economy, 2014
The paper considers the optimal transition path for China's exchange rate regime. How can China successfully make the shift from the current dollar peg regime to a more desirable regime, whether a basket peg or a floating regime? To answer this question, we develop a dynamic small open economy general equilibrium model. We construct four transition policies based on a basket peg or a floating regime and compare the welfare gains of these policies relative to maintaining the dollar peg regime. Two main results are derived from the quantitative analysis using Chinese data from 1999Q1 to 2010Q4. First, following a gradual adjustment to a basket peg regime is the most appropriate path for China to take, with minimal welfare losses associated with the shift in the exchange rate regime. Second, a sudden shift to the basket peg is the second best solution, and is superior to a sudden shift to floating because the monetary authority can efficiently determine optimal weights to attach to currencies in the basket to achieve policy goals once they adopt a basket peg regime.
Assessing China's exchange rate regime
Economic Policy, 2007
The IMF Articles of Agreement forbid a country from manipulating its currency for unfair advantage. The US Treasury has been legally required since 1988 to report to Congress biannually regarding whether individual trading partners are guilty of manipulation. One part of this paper tests econometrically two competing sets of hypothesized determinants of the Treasury decisions: (1) legitimate economic variables consistent with the IMF definition of manipulation -the partners' overall current account/GDP, its reserve changes, and the real overvaluation of its currency, and (2) variables suggestive of domestic American political expediency --the bilateral trade balance, US unemployment, and an election year dummy. The econometric results suggest that the Treasury verdicts are driven heavily by the US bilateral deficit, though other variables also turn out to be quite important. In 2005 China announced a switch to a new exchange rate regime. The exchange rate would be set with reference to a basket of other currencies, with numerical weights unannounced, allowing a movement of up to+/-.3% within any given day. Although this step was originally accepted at face value in public policy circles, skepticism is in order. The second econometric part of the paper evaluates what exchange rate regime China has actually been following We use the technique introduced by Frankel and Wei (1994): one regresses changes in the value of the local currency, in this case the RMB, against changes in the values of the dollar, euro, yen, and other currencies that may be in the basket. We find that within 2005, the de facto regime remained a peg to a basket that put virtually all weight on the dollar. Subsequently there has been a modest but steady increase in flexibility with some weight shifted to a few non-dollar currencies -but not those one might expect. In any case, the weight on the dollar was still fairly heavy in 2006. The paper tests whether the decline in the implicit weight on the dollar is related to the pressure from US officials. It also considers whether the increase in flexibility that we have seen, small though it is, has been gradually accelerating, at a rate that would suggest the likelihood of some genuine flexibility in the notso-distant future.
2019
This work aimed to analyze the problem of exchange rate regimes of the backet-peg type. After the end of the Bretton Woods system, the exchange rate regime was almost flexible by international convention. However, to ensure price stability and cool down the economy, developing countries have implemented exchange rate regimes anchored to international currencies. As a result, they used a dollar-peg regime, since the dollar is a currency that rises to the role of international currency. The abandonment of this system has led some countries to implement a basket-peg regime. Therefore, we tried to analyze the Chinese exchange rate regime after criticism of the estimation models. In the end, we concluded that it is still anchored to the US dollar.
Mofication of Chinese Exchange rate policy: Rationale, extent and recent development
On July 21, China slightly revalued the Renminbi and officially modified the exchange rate regime. Interpreting this move as only the outcome of international pressures to reduce international trade imbalances is however misleading. To support our argument, we explore the rationale of the July 21 decision in the history of exchange rate management in China, and through the review of the twin debates of exchange rate level / regime. We argue that both external and internal concerns are took into account by Chine authorities in the exchange rate management. Moreover, the entire responsibility of Chinese exchange rate management in the world trade imbalances is doubtful. The review of the recent development since the July 21 shows that the impact of July 21 decision is limited. While the hot money inflows seems to have been tamed, the previous economic trends have not been modified to date.
What is the new Chinese currency regime
The revaluation of the renminbi in July 2005 was described by the Chinese central bank as a change in the currency regime, rather than merely a changed level of the exchange rate. The reform was said to involve a shift away from the fixed exchange rate, a gradual movement towards greater flexibility, and a peg to a basket of currencies.
On China's Exchange Rate Regime: Is Euro outside
This study will demonstrate, through an econometric model in time series, if and how the Chinese basket peg has changed in relation to the weight that the European currency holds within it. Specifically, utilizing Frankel's (1994) econometric model but revisited new approach enriched by Hildreth-Lu' method, our objective is to verify if the Eurozone crisis has affected the inner balance of the Chinese basket-peg, swaying it from the Euro towards a more favorable dollar. Finally we find an evident tendency of Dollar and South Korea Won to increase the weights in Chinese basket peg with a clear deterioration of the euro role
A “TIME SERIES” APPROACH ON THE CHINESE EXCHANGE RATE REGIME
This paper deals with the issue of the exchange rate regime that China has established since 2005, when it announced a move away from the US dollar peg. In fact, from that date, the RMB was managed with reference to a basket of currencies rather than being pegged to the dollar; the exchange rate, therefore, became more flexible.
Dynamic Transition of the Exchange Rate Regime in the People's Republic of China
SSRN Electronic Journal, 2000
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