Verifying China's exchange rate regime: it is a discretionary crawling peg to the US dollar!

Jyh-Dean Hwang

International Journal of Trade and Global Markets, 2014, vol. 7, issue 3, 250-270

Abstract: This paper investigates the evolution of China's exchange rate regime after the announced shift to a managed floating exchange rate regime with reference to a basket of currencies in July 2005. We find that the RMB basket is essentially a one currency basket of the US dollar. In view of this finding and that the exchange rate of RMB against the US dollar has been crawling upward in an on-and-off manner and at a slow yet erratic rate after the regime shift, China's current exchange rate regime can best be characterised as a discretionary crawling peg to the US dollar. We suggest that a discretionary crawling peg to the US dollar is the optimal and logical choice for China and it will probably be quite some time before China moves to a freely floating exchange rate regime or only to a managed floating exchange rate regime in the real sense.

Keywords: China; exchange rates; currency basket; RMB; discretionary crawling peg; US dollar; time-varying coefficients; state space model; floating exchange rate. (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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