China's capability to control its exchange rate (original) (raw)
Related papers
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.
Understanding China's Currency Manipulation
2018
The nominal value of a nation's currency is determined, to varying degrees, in the currency market. Since 2005, China's monetary regime has set the value of the Chinese Renminbi (RMB) rather than market forces. China's monetary policy has inspired debate about whether China is adhering to International Monetary Fund (IMF) protocols, 1,2 and whether China can be labeled a currency manipulator. 3,4 Our analysis of this issue using real exchange rates provides additional evidence that China is undervaluing its currency, and thereby artificially inflating its net exports-to the benefit of US consumers but at the expense of the US trade deficit.
Reforms of China’s exchange rate regime and the renminbi internationalization
Ekonomia i Prawo
Motivation: After four decades of very successful reforms, China has become one of the largest economies in the world. An important area of these reforms is the exchange rate system and monetary policy, which over the years has complied with economic objectives, in particular the promotion of economic growth by improving export competitiveness. The progressive liberalisation of the Chinese economy and its ever closer integration into the world economy require this policy to be adapted to changing circumstances. Aim: The aim of the article is to analyze China's exchange rate policy from the perspective of the dilemma of choosing between using this policy to support export competitiveness and striving to internationalise the renminbi. Moreover, the author assesses the consequences of this policy for China's economy and for the world economy. The study includes theoretical research (analysis of the literature and research reports) and empirical research (analysis of statistical data) using a descriptive analysis. Results: For many years China's exchange rate policy has been focused on supporting economic growth by improving export competitiveness, resulting in both increasing internal imbalances and difficulties in stabilising inflation, as well as the accumulation of global payments imbalances. Since 2005 China has made its currency more flexible, so that the underestimation of the renminbi's exchange rate has decreased. In recent years, China has intensified its efforts to support the internationalisation of the renminbi. However, the renminbi is not yet in rivalry with the US dollar as the dominant international currency, although the Chinese currency's share as an international currency is increasing, which should have a positive impact on the stability of global financial relations.
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.
DEStech Transactions on Social Science, Education and Human Science, 2016
We calculate exchange intervention index to reflect the open market operation of central bank, introduce the Hong Kong's offshore RMB exchange rate (CNH) to establish Central bank reaction function and further analyze the influence that CNH has on the exchange intervention activities of China's Central Bank. We discover that the influence is not quite evident due to the insufficient development of financial market. Thus, we study the relationship between offshore Deutsche Mark rate and the exchange intervention of Deutsche Bundesbank on the basis that Mark has been completed the whole development of international currency offshore market.
Management of the External Value of the Renminbi
Pegging the renminbi (RMB) to the US dollar since 1994 has characterised China’s exchange rate policy, under either a fixed peg or appreciating crawling peg. The current policy, announced in June 2010, of ‘floating with reference to a basket’ has now in April 2015 made the RMB 19 per cent stronger against a trade-weighted basket, while it is nine per cent stronger against the USD. Ten percentage points thus arise from changes in the cross rates of the other currencies. This effect could be eliminated by managing the external value of the RMB with reference to a genuine broad basket. This could be a suitable intermediary exchange rate regime for China as the risks of jumping to free floating are still great. Diversifying further the currency composition of the foreign exchange reserves and other foreign assets of the Chinese government, from USD towards EUR and JPY assets, would be a natural parallel shift. The current EUR-USD-JPY exchange rates may offer a good opportunity to carry ...
The Renminbi's Dollar Peg at the Crossroads
Center For International and Development Economics Research, 2006
In the face of huge balance of payments surpluses and internal inflationary pressures, China has been in a classic conflict between internal and external balance under its dollar currency peg. Over the longer term, China's large, modernizing, and diverse economy will need exchange rate flexibility and, eventually, convertibility with open capital markets. A feasible and attractive exit strategy from the essentially fixed RMB exchange rate would be a two-stage approach, consistent with the steps already taken since July 2005, but going beyond them. First, establish a limited trading band for the RMB relative to a basket of major trading partner currencies. Set the band so that it allows some initial revaluation of the RMB against the dollar, manage the basket rate within the band if necessary, and widen the band over time as domestic foreign exchange markets develop. Second, put on hold ad hoc measures of financial account liberalization. They will be less helpful for relieving exchange rate pressures once the RMB/basket rate is allowed to move flexibly within a band, and they are best postponed until domestic foreign exchange markets develop further, the exchange rate is fully flexible, and the domestic financial system has been strengthened and placed on a market-oriented basis.