China's Exchange Rate Policy: The Case Against Abandoning the Dollar PEG
AbstractThis paper critically evaluates the policy literature surrounding China's exchange rate regime.It first discusses several popularly raised contentions in relation to the dollar peg employed by China, which in fact are poorly grounded in evidence.These include notions that the RMB is clearly undervalued and that its value is a prominent cause of the U.S trade deficit.The paper then describes a consensus position that has emerged which argues that China should abandon the peg in favour of a flexible exchange rate regime.We see numerous weaknesses in this position but a few stand out.Moving to a flexible regime is far from the most proximate policy response to the problems that the consensus literature itself identifies in China's economy.Institutional realities that make moving to a flexible regime difficult also appear to have been seriously overlooked.The paper concludes by noting that in the longer term moving to a managed float may be in China's best interests - but for now the focus needs to be firmly in the area of domestic financial reform.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-70.
Date of creation: 2005
Date of revision:
Contact details of provider:
Web page: http://center.uvt.nl
exchange rate; dollar peg; managed float; China;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-07-11 (All new papers)
- NEP-BEC-2005-07-11 (Business Economics)
- NEP-IFN-2005-07-11 (International Finance)
- NEP-MAC-2005-07-11 (Macroeconomics)
- NEP-MON-2005-07-11 (Monetary Economics)
- NEP-SEA-2005-07-11 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald McKinnon & Gunther Schnabl, 2003.
"Synchronised Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate,"
The World Economy,
Wiley Blackwell, vol. 26(8), pages 1067-1088, 08.
- Ronald McKinnon & Gunther Schnabl, 2003. "Synchronized Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate," Working Papers 022003, Hong Kong Institute for Monetary Research.
- McKinnon, Ronald I., 2004. "The East Asian dollar standard," China Economic Review, Elsevier, vol. 15(3), pages 325-330.
- Ronald McKinnon & Gunther Schnabl, 2003.
"The East Asian Dollar Standard, Fear of Floating, and Original Sin,"
112003, Hong Kong Institute for Monetary Research.
- Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
- Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 03001, Stanford University, Department of Economics.
- Mundell, Robert, 2003. "Prospects for an Asian currency area," Journal of Asian Economics, Elsevier, vol. 14(1), pages 1-10, February.
- Barry Eichengreen & Gisela Rua, 2011.
"Exchange Rates and Global Rebalancing,"
Finance Working Papers
23258, East Asian Bureau of Economic Research.
- Zhang, Zhichao & Shi, Nan & Zhang, Xiaoli, 2011.
"China’s new exchange rate regime, optimal basket currency and currency diversification,"
32642, University Library of Munich, Germany.
- Zhang, Zhichao & Shi, Nan & Zhang, Xiaoli, 2011. "China’s new exchange rate regime, optimal basket currency and currency diversification," BOFIT Discussion Papers 19/2011, Bank of Finland, Institute for Economies in Transition.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.