On the Chinese Exchange Rate Regime: An Attempt to Flexibility During 2015 (original) (raw)
Related papers
China’s New Exchange Rate Regime, Optimal Basket Currency and Currency Diversification
SSRN Electronic Journal, 2000
We build an optimising framework to analyse a class of economies that adopt an ECU-type basket currency while in transition to increased flexibility of the exchange rate regime. Instead of conventional basket pegging, such an economy uses an ECU-type currency index as a benchmark for monitoring and assessing exchange rate movements. This provides an anchoring device for the nation"s exchange rate regime and allows the home currency"s exchange rate to fluctuate. Under the assumption that the central bank is chiefly interested in maintaining stability, the optimal structure of the basket currency is based on its contribution to minimizing the volatility of the country"s external account. A currency invariance index is applied to capture the effect of the country"s exit from exclusive linkage with the US dollar. The approach is illustrated by Chinese exchange rate policy. We find it advisable and viable for China to form a basket currency with a diversified portfolio of currencies. While the portfolio"s weighting scheme could favour the dollar, euro and Japanese yen, we show that the composition of the basket is open to a wide range of possibilities. Moreover, contrary to general fears, there is considerable potential for China to engage in currency diversification, which will not necessarily affect the dollar"s position.
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.
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.
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
The mystery of the Chinese exchange rate regime: basket or no basket?
Applied Economics, 2016
Economists have taken for granted the claim made by the Chinese government that the policy shift introduced in July 2005 constituted a change in the exchange rate regime from a fixed peg to a basket peg. We demonstrate that neither the stylized facts nor the empirical evidence support the proposition of a basket peg and suggest several reasons as to why China has not adopted this regime. The results could prove useful for identifying the Chinese exchange rate regime in the aftermath of the perceived policy shift following the August 2015 devaluation.
Is Chinese yuan undervalued? A multi-currency basket approach
We examine the valuation of Chinese currency had it not been pegged to the U.S. Dollar. To the extent that the Chinese Yuan can be predicted by the change of multi-currency basket including four currency values, such as Australian Dollar, Euro, U.K. Pound, U.S. Dollar, our regression analysis suggests that the Chinese Yuan is undervalued during the period of January 1999~October 2009. The results of Yuan undervaluation remain intact even after we change the composition of currency basket. We further explore the implication of this hard pegging both in short term and long term for China, United States and other countries. Finally, due to the global imbalance arising from China's huge trade surplus and huge trade deficit of U.S., we argue that removing hard pegging to the U.S. Dollar could be beneficial to China and the remaining part of the world in the long-term to alleviate the global imbalance problem.
Assessing Chinese Currency Regime (2012)
The current study updates the question about the relation of Chinese currency with its major trading partner currencies. The study revolves to analyze the Chinese exchange rates. It is assumed that Chinese Yuan have a major relation with US Dollar and in order to find out such impact, around 2060 observations have been used and Dickey Fuller Unit root test has been applied in order to find out the trend and checked non-stationary at several levels. After that Multiple Regression had been applied on stationary observations. Finally result revealed that US Dollar and Japanese Yen have a significantly relation with Chinese Yuan whereas Euro and Great Britain Pound are not having significantly relation. It was also found that Chinese Yuan let itself change due to some internal factors.
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.
A FEER model for the equilibrium Chinese yuan/US dollar real exchange rate
2009
This paper provides an application of the FEER model to the real exchange rate of the Chinese Yuan against the US Dollar. An important contribution is that we incorporate into the sustainable current account fundamentals that reflect the unique features of the Chinese economy but have not been employed by previous studies. Another contribution is the construction of a unique data set of consistent time series for economic fundamentals and trade-related variables, which allow us to carry out an econometric investigation of trend and sustainable current accounts and compute the FEER for both pre- and post-reform periods. The empirical results show that both the sustainable and trend current account surpluses have been steadily rising since the early 1990s. Chinese exports appear to be more price elastic, while imports are more income elastic. The misalignment rates suggest that the RMB was overvalued against the USD during the pre-reform period and has been undervalued for most of the...