RMB revaluation will serve China's self-interest

China has operated its exchange rate regime as a de-facto peg to the dollar since the devaluation of August 1994. Given the stunning growth in foreign exchange reserves in 2003, this paper argues that the optimal currency adjustment is a one-time maxi revaluation of roughly 15% versus the U.S. dolla...

Full description

Saved in:
Bibliographic Details
Published in:China economic review 2004, Vol.15 (3), p.331-335
Main Authors: TUNG, Chen-Yuan, BAKER, Sam
Format: Article
Language:English
Subjects:
Exchange rate regime
Foreign exchange reserves
Hot money
Monetary policy
Renminbi exchange rate
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:China has operated its exchange rate regime as a de-facto peg to the dollar since the devaluation of August 1994. Given the stunning growth in foreign exchange reserves in 2003, this paper argues that the optimal currency adjustment is a one-time maxi revaluation of roughly 15% versus the U.S. dollar to a new fixed rate but to a modified anchor, that is, a trade-weighted currency basket. Once the currency was repegged and the new reference basket was implemented, any additional moves, such as widening the trading band, could be phased during a transition period of some years, providing a safe and effective path to a more flexible exchange rate regime in the medium to long term.
ISSN:1043-951X
1873-7781
DOI:10.1016/j.chieco.2004.06.003