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The Future of China's Exchange Rate Policy

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Author Info

  • Morris Goldstein

    (Peterson Institute for International Economics)

  • Nicholas R. Lardy

    (Peterson Institute for International Economics)

Abstract

Over the past five years China has emerged as the world's largest global surplus economy; indeed by 2007-08 the size of its surplus relative to its GDP was of a magnitude unprecedented for a large trading economy. This development is especially surprising since in the first twenty-five years of economic reform China's trade and current account surpluses were quite small by East Asian standards, averaging less than 2 percent of GDP. This study provides a comprehensive analysis of the key economic challenges facing the Chinese authorities in light of the still undervalued exchange rate, the large build-up of foreign exchange reserves, and more recently the sharp decline in economic growth. It analyzes the implications of China's exchange-rate policy for the effectiveness of monetary policy, the transition to a commercially oriented banking system, the evolving structure of output and demand, and the risk of protectionism abroad. The policy-options portion of the study takes account of the significant real effective appreciation of the renminbi over the past fifteen months and will contrast the pros and cons of a "stay-the-course" policy with that of a bolder, "three-stage" approach that would seek to maintain recent progress and to reduce even further the undervaluation of the renminbi.

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Bibliographic Info

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This book is provided by Peterson Institute for International Economics in its series Peterson Institute Press: Policy Analyses in International Economics with number pa87 and published in 2009.

ISBN: 978-0-88132-416-7
Handle: RePEc:iie:piiepa:pa87

Note: Policy Analyses in International Economics 87
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Cited by:
  1. Dennis Tao Yang, 2012. "Aggregate Savings and External Imbalances in China," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 125-46, Fall.

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