Verifying China's exchange rate regime: it is a discretionary crawling peg to the US dollar!
by Jyh-Dean Hwang
International Journal of Trade and Global Markets (IJTGM), Vol. 7, No. 3, 2014

Abstract: This paper investigates the evolution of China's exchange rate regime after the announced shift to a managed floating exchange rate regime with reference to a basket of currencies in July 2005. We find that the RMB basket is essentially a one currency basket of the US dollar. In view of this finding and that the exchange rate of RMB against the US dollar has been crawling upward in an on-and-off manner and at a slow yet erratic rate after the regime shift, China's current exchange rate regime can best be characterised as a discretionary crawling peg to the US dollar. We suggest that a discretionary crawling peg to the US dollar is the optimal and logical choice for China and it will probably be quite some time before China moves to a freely floating exchange rate regime or only to a managed floating exchange rate regime in the real sense.

Online publication date: Wed, 29-Oct-2014

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