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    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. http://hdl.handle.net/11540/3965. License: CC BY 3.0 IGO.
    Keywords
    Development
    Finance
    Development Challenges
    Development Issues
    Development Problems
    Microenterprises Finance
    Commercial Finance Companies
    Enterprise Financing
    Financial Analysis
    Banking Finance And Investment
    ADB
    Project finance
    Development plans
    Strategic planning
    Business Financing
    Investment Requirements
    Insurance Companies
    International Monetary Relations
    International Financial Market
    Exchange Rate
    Insurers
    Insurance stocks
    Insurance holding companies
    Insurance carriers
    Insurance agencies
    Business subsidies
    Investment companies
    International banks and banking
    Stock exchanges
    Grants
    Loans
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    Citable URI
    http://hdl.handle.net/11540/3965
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    Author
    Yoshino, Naoyuki
    Kaji, Sahoko
    Asonuma, Tamon
    Theme
    Development
    Finance
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise