Title: Verifying China's exchange rate regime: it is a discretionary crawling peg to the US dollar!
Author: Jyh-Dean Hwang
Address: Department of International Business, National Taiwan University, 85 Roosevelt Road Sect. 4, Taipei, Taiwan
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.
Keywords: China; exchange rates; currency basket; RMB; discretionary crawling peg; US dollar; time-varying coefficients; state space model; floating exchange rate.
Int. J. of Trade and Global Markets, 2014 Vol.7, No.3, pp.250 - 270
Available online: 22 Sep 2014