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

Paul S. L. Yip ()
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Paul S. L. Yip: Economics Division, School of Humanities and Social Sciences, Nanyang Technological University, 14 Nanyang Drive, 637332, Singapore

The Singapore Economic Review (SER), 2016, vol. 61, issue 02, 1-40

Abstract: 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.

Keywords: Exchange rate system; financial crisis; exchange rate crisis; asset bubble; China (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1142/S0217590816400257

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