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Reforms of China’s exchange rate regime and the renminbi interna-tionalization

Katarzyna Twarowska ()
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Katarzyna Twarowska: Maria Curie-Sklodowska University in Lublin

Ekonomia i Prawo, 2019, vol. 18, issue 4, 531-556

Abstract: Motivation: After four decades of very successful reforms, China has become one of the largest economies in the world. An important area of these reforms is the exchange rate system and monetary policy, which over the years has complied with economic objectives, in particular the promo-tion of economic growth by improving export competitiveness. The pro-gressive liberalisation of the Chinese economy and its ever closer integra-tion into the world economy require this policy to be adapted to changing circumstances. Aim: The aim of the article is to analyze China’s exchange rate policy from the perspective of the dilemma of choosing between using this policy to support export competitiveness and striving to international-ise the renminbi. Moreover, the author assesses the consequences of this policy for China’s economy and for the world economy. The study includes theoretical research (analysis of the literature and research reports) and empirical research (analysis of statistical data) using a descriptive analysis. Results: For many years China’s exchange rate policy has been focused on supporting economic growth by improving export competitiveness, result-ing in both increasing internal imbalances and difficulties in stabilising inflation, as well as the accumulation of global payments imbalances. Since 2005 China has made its currency more flexible, so that the underestima-tion of the renminbi’s exchange rate has decreased. In recent years, China has intensified its efforts to support the internationalisation of the renminbi. However, the renminbi is not yet in rivalry with the US dollar as the dominant international currency, although the Chinese currency’s share as an international currency is increasing, which should have a posi-tive impact on the stability of global financial relations.

Keywords: exchange rate policy; export-led growth strategy; trade competi-tiveness; global imbalances; renminbi internationalization (search for similar items in EconPapers)
JEL-codes: F31 F32 F40 N25 O24 (search for similar items in EconPapers)
Date: 2019
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