Dynamic Transition of the Exchange Rate Regime in the People’s Republic of China
Yoshino, Naoyuki; Kaji, Sahoko; Asonuma, Tamon | April 2014
Abstract
This paper analyzes the optimal transition of the exchange rate regime in the People’s Republic of China (PRC). How the PRC can successfully reach the desired regime—whether a basket peg or floating regime—from the current dollar-peg regime remains a major question. To answer it, we develop a dynamic small open-economy general equilibrium model. We construct four transition policies toward the basket-peg or floating regime and compare the welfare gains of these policies to those of maintaining the dollar-peg regime. Quantitative analysis using PRC data from Q1 1999 to Q4 2010 leads to two conclusions. First, a gradual adjustment toward a basket-peg regime seems the most appropriate option for the PRC, and would minimize the welfare losses associated with a shift in the exchange rate regime. Second, a sudden shift to a basket peg is the second-best solution. This is preferable to a sudden shift to a floating regime, since it would enable the authorities to implement optimal weights efficiently in order to achieve policy goals once a decision has been made to adopt a basket-peg regime.
Citation
Yoshino, Naoyuki; Kaji, Sahoko; Asonuma, Tamon. 2014. Dynamic Transition of the Exchange Rate Regime in the People’s Republic of China. © Asian Development Bank Institute. http://hdl.handle.net/11540/1238. License: CC BY-NC-ND 3.0 IGO.Keywords
Trade Finance
Rural Finance
Regional Development Finance
Public Financial Management
Public Finance
International Finance
Intergovernmental Finance
Financial System
Financial Flows
Financial Assets
Finance And Trade
Trade Finance
Local Finance
International Monetary Relations
Local Finance
Banks
Capital Market
financial statistics
Foreign trade
Municipal government
Metropolitan government
International banks and banking
Capital movements
Central banks and banking
Bills of exchange
Swaps
Banks and banking
Stock exchanges
Market
Exchange
Balance of trade
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http://hdl.handle.net/11540/1238Metadata
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