Does China Need a More Flexible Exchange Rate?

Download or read book Does China Need a More Flexible Exchange Rate? written by Teng T. Xu and published by . This book was released on 2010 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt: "During the past few years, there has been heated debate - both domestically and internationally - about China’s exchange rate policy. At the heart of the debate are two fundamental issues: First, is the renminbi undervalued? If so, by how much; and second, toward what exchange rate regime should China move? This paper sheds light on the first issue by examining the "equilibrium" value of the renminbi and its alleged undervaluation, but focuses on the second issue - in particular, the risks to financial stability and the domestic costs of China’s current exchange rate regime. By reviewing a large number of Chinese and western literatures on a series of specific issues pertaining to China’s exchange rate policy such as: the revolution of the renminbi exchange rate regime since the start of the economic reforms 30 plus year ago; the "equilibrium" value of the renminbi and its alleged undervaluation; China’s fast growing current account surplus in recent years and its contribution factors; the risks to financial stability and other domestic costs of China’s current rigid exchange rate regime, this paper finds that the latest debates on the renminbi exchange rate regime in China mirror those in the west. In other words, there are same rival camps both inside and outside China. The synthesis of their findings is that greater exchange rate flexibility can resolve many of the challenges and obstacles posed by China’s current tightly managed exchange rate regime."--P. ii.