CHINA’S EXCHANGE RATE SYSTEM REFORM: TWO POTENTIAL MISTAKES AND THE RECOMMENDED LONG-TERM SYSTEM

2016 ◽  
Vol 61 (02) ◽  
pp. 1640025
Author(s):  
PAUL S. L. YIP
Keyword(s):  
Exchange Rate ◽  
Capital Mobility ◽  
Exchange Rate Policy ◽  
Chinese Economy ◽  
System Reform ◽  
Rate System ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Exchange Rate System

Further to the author’s recommended transitory and medium-term exchange rate system reforms that was implemented in China since July 2005, this paper explains that: (1) a long-term reform towards a floating exchange rate system with free capital mobility will cause huge damages to the Chinese economy. It then proposes a long-term exchange rate system that would probably benefit China the most; and (2) there is a serious mistake in China’s latest exchange rate policy: The Chinese central bank has mistakenly allowed the renminbi exchange rate to rise with the strong rebound of the US dollar. This will cause not only a substantial drag in China’s export and GDP growth, but will also eventually make China’s financial and economic system vulnerable to a highly disruptive correction in the renminbi exchange rate.

TO PEG OR NOT TO PEG?

2007 ◽  
Vol 52 (01) ◽  
pp. 39-52 ◽  
Author(s):  
ANTHONY J. MAKIN
Keyword(s):  
Exchange Rate ◽  
National Income ◽  
Real Income ◽  
Exchange Rate Policy ◽  
Monetary Shocks ◽  
Rate System ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Exchange Rate System ◽  
Real Shocks

This paper presents a simple framework for analyzing the macroeconomic effects of internal and external shocks under polar exchange rate regimes. It highlights the significance of fluctuations in competitiveness and real income for exchange rate policy, revealing that positive (negative) real shocks increase (decrease) national income and strengthen (weaken) the balance of payments and exchange rate. It also shows that, ceteris paribus, pegged exchange rates facilitate real income growth for emerging economies while lowering its variability when exports and productivity are improving and monetary shocks predominate. Alternatively, a floating exchange rate system may be most appropriate for less open advanced economies with relatively stable monetary sectors that frequently experience negative real shocks.

CHINA'S EXCHANGE RATE SYSTEM REFORM

2007 ◽  
Vol 52 (03) ◽  
pp. 363-402 ◽  
Author(s):  
PAUL S. L. YIP
Keyword(s):  
Exchange Rate ◽  
Stock Market ◽  
Financial Crises ◽  
System Reform ◽  
Rate System ◽  
The Future ◽  
Exchange Rate System ◽  
Exchange Rate Arrangements ◽  
Economic Developments

This paper first documents the rationales behind the transitional exchange rate system reform adopted by China on 21 July 2005. It then outlines the theory behind the medium- and long-term exchange rate arrangements that could be adopted. Thereafter, the paper provides recommendations on supplementary packages that could increase the chance of a successful reform, and increase China's immunity and resilience against financial crises in the future. Finally, the paper discusses the market and economic developments after the transitional reform, and highlights that failure to check the stock market bubble and rampant property inflation could turn the initial success of the reform to an eventual failure and bring disasters to China in the longer future.

Thailand, Malaysia and the Philippines: Currency Crisis

1997 ◽  
Vol 8 (5) ◽  
pp. 115-115
Keyword(s):  
Exchange Rate ◽  
The Philippines ◽  
Exchange Rate Policy ◽  
Negative Effects ◽  
Rate System ◽  
Bank Rate ◽  
Economic Fundamentals ◽  
Recent Developments ◽  
Rate Policy ◽  
Exchange Rate System

In response to recent developments, Thailand's exchange rate system has been changed, effective July 2, 1997, to a managed float, with the value of the baht being determined by market forces in line with economic fundamentals. To support the new exchange rate policy, the Bank of Thailand has raised the Bank Rate from 10.5 percent to 12.5 percent. The Thai authorities are also considering supplementary measures to alleviate potential negative effects on debt servicing and prices that may result from adjustments in the value of the baht.

scholarly journals Währungspolitik Im Dienste Von Entwicklung: Immer Noch Ein Forschungsprogramm

2004 ◽  
Vol 53 (2) ◽  
Author(s):  
Friedrich L. Sell
Keyword(s):  
Economic Development ◽  
Exchange Rate ◽  
Financial Markets ◽  
Exchange Rate Policy ◽  
Rate System ◽  
Rate Policy ◽  
Exchange Rate System ◽  
Economic Reasoning ◽  
And Control ◽  
Working Hypotheses

AbstractIn this paper, we first formulate a number of working hypotheses about the likely contributions of exchange rate policy to economic development on the background of the famous “trilemma” which exchange rate policy has to face. Then, we broadly review experiences made by developing countries with different exchange rate regimes in the past 30 years. We find that in addition to the classical trilemma put forward by Bob Mundell (1968) vis-à-vis the exchange rate system, emerging economies have to solve at least one more trilemma located in their domestic financial markets. We show that the alternatives “flexible” or “fixed” exchange rates can only be chosen based on sound economic reasoning with regard to the stance and control of domestic financial markets. From this perspective, one can expect contributions to economic development and even give some advice to China and its current exchange rate policy.

scholarly journals Accession to the Eurozone as Lithuania’s exit strategy from the currency board system

Equilibrium ◽  
2015 ◽  
Vol 10 (3) ◽  
pp. 27
Author(s):  
Dorota Żuchowska
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Policy ◽  
Currency Board ◽  
Convergence Criteria ◽  
Exit Strategy ◽  
Rate System ◽  
Starting Point ◽  
Rate Policy ◽  
Exchange Rate System ◽  
Board System

In the years 2004-2014 the Lithuania’s exchange rate policy was based on a rigid currency board system. After a period of uncontested success in the fight against inflation in the first decade of the transition and economic growth, entering the ERM II in 2004 and efforts to adopt the euro were treated as an optimal exit strategy from the currency board system. However, the consequences of this exchange rate system in the following years (until 2014) prevented Lithuania from meeting the economic convergence criteria. The starting point for the research is based on the theoretical analysis of literature studying benefits and risks associated with the use of the currency board system by the monetary authorities. The empirical analysis refers to the case of Lithuania and covers the years 2004-2014. The purpose of this analysis is to look at the effects of the use of the currency board system from the perspective of the convergence criteria of monetary nature and the extent of their implementation in the absence of opportunities for autonomous monetary policy.

Exchange rate system, policy distortions, and the maintenance of trade dependence

1982 ◽  
Vol 36 (4) ◽  
pp. 715-739 ◽  
Author(s):  
Bruce E. Moon
Keyword(s):  
Exchange Rate ◽  
Developed Countries ◽  
The United States ◽  
Exchange Rate Policy ◽  
Rate System ◽  
Rate Policy ◽  
Exchange Rate System ◽  
The Exchange Rate ◽  
Actual Exchange ◽  
External Actors

Two central tenets of dependency theory are supported by the analysis of the causes and consequences of the exchange rate policies of less developed countries (LDCs). First, one critical component—high partner trade concentrations—is recreated by the choice of exchange arrangements. Specifically, nations that have maintained a dollar peg have significantly increased their concentration of trade with the United States since 1973. This occurs because of the exchange rate risk present in any transaction that involves a dollar-pegged currency and any other major currency against which it floats. Second, such an effect produces incentives for internal and external actors with an interest in the partner composition of future trade to influence the exchange rate policy of LDCs. Various components of the dependence situation that strengthen the role of such actors—partner trade concentrations, treaty arrangements, foreign aid, etc.—are significantly correlated with actual exchange rate practice. Thus, exchange rate policy is a linch-pin mechanism, in that it both manifests distortions produced by dependency and further acts to recreate a vital aspect of the situation that gave rise to the distortions.

Global Monetary Cooperation and the Exchange Rate System

2017 ◽  
Author(s):  
José Antonio Ocampo
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Policy ◽  
Critical Area ◽  
Macroeconomic Policies ◽  
Rate System ◽  
Monetary Cooperation ◽  
System P ◽  
Rate Policy ◽  
Exchange Rate System ◽  
Basic Objective

This chapter looks at historical and current frameworks to manage macroeconomic linkages among economies. The basic objective of cooperation in this area is to guarantee the consistency of the macroeconomic policies of major economies, to avoid both unsustainable global booms and crises. This requires an adequate supply of liquidity at the international level, the topic analysed in Chapter 2, as well sustainable payments balances and an adequate exchange rate system, two areas of cooperation analysed here. The chapter looks first at the evolving nature of global imbalances. It then analyses the mechanisms that have been put in place at different times to manage macroeconomic linkages among major economies, before finally considering the current exchange rate ‘non-system’. The chapter claims that exchange rate policy is perhaps the most critical area for which macroeconomic policy cooperation should be strengthened, particularly by moving to a system of reference rates among major currencies.

Fear of Free Floating or Forced Exchange Rate Fixing

2004 ◽  
pp. 112-122
Author(s):  
O. Osipova
Keyword(s):  
Exchange Rate ◽  
Financial Crisis ◽  
Exchange Rates ◽  
Inflation Targeting ◽  
Exchange Rate Policy ◽  
Float Exchange Rate ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Exchange Rate Arrangements ◽  
Pass Through

After the financial crisis at the end of the 1990 s many countries rejected fixed exchange rate policy. However actually they failed to proceed to announced "independent float" exchange rate arrangement. This might be due to the "fear of floating" or an irreversible result of inflation targeting central bank policy. In the article advantages and drawbacks of fixed and floating exchange rate arrangements are systematized. Features of new returning to exchange rates stabilization and possible risks of such policy for Russia are considered. Special attention is paid to the issue of choice of a "target" currency composite which can minimize external inflation pass-through.

Exchange Rate Regimes and Economic Stability

2010 ◽  
pp. 29-43
Author(s):  
S. Smirnov
Keyword(s):  
Exchange Rate ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Exchange Rate Policy ◽  
Real Sector ◽  
Economic Stability ◽  
Exogenous Shocks ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Managed Floating

The Bank of Russia intends to introduce inflation targeting policy and exchange rate free floating regime in three years. Exogenous shocks absorption which stabilizes the real sector of economy is usually considered to be one of the advantages of free floating exchange rate policy. However, our research based on the analysis of 25 world largest economies exchange rates and industrial production during the crisis of 2008-2009 does not confirm this hypothesis. The article also analyzes additional risks associated with free floating exchange rate regime in Russia and presents some arguments in favor of managed floating exchange rate regime.

Exchange Rate and Industry-Level Energy Import

2021 ◽  
pp. 71-86
Author(s):  
Abdul Sahib ◽  
Sergey Prosekov
Keyword(s):  
Exchange Rate ◽  
Supply And Demand ◽  
Exchange Rate Volatility ◽  
Trade Flows ◽  
Level Energy ◽  
Rate System ◽  
Domestic Prices ◽  
Floating Exchange Rate ◽  
Exchange Rate System ◽  
The Impact

After the Bretton Woods exchange rate system in 1973, the free-floating exchange rate, the rate determined by the forces of supply and demand, began, which developed an interest in the area of many researchers to investigate, theoretically and empirically, the impact of exchange rate volatility on the world trade flows. There are two channels, direct and indirect, through which the change in exchange rate affects domestic prices. Under the direct channel, a fall in exchange rate leads to increase in imports as well as increases the prices of inputs in domestic currency. Secondly, under the indirect channel, a decline in the exchange rate triggers the availability of domestic goods to foreign buyers at a cheaper rate, and the demand for domestic products increased. Thus, the change in exchange rate affects trade flows either positively or negatively.

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