Publication Type
Journal Article
Version
publishedVersion
Publication Date
8-2022
Abstract
We provide a review and empirical study on the exchange rate system reform in China. In the initial stage of the reform the Chinese central bank PBoC's implicit promise of gradual appreciation helped to contain the appreciation rate and volatility of the renminbi. Subsequently, under US pressure for faster appreciation and hence the PBoC's moderate violation of the implicit promise, there was a significant rise in the appreciation rate and the volatility of the renminbi. The moderate violation deteriorated further, forming a vicious cycle of speculative flows and faster exchange rate changes. Upon the onset of the global financial crisis in 2008, the threatening appreciation and volatility alleviated when the PBoC returned to the implicit stance of gradual appreciation or stable renminbi. We found that in the first ten years of the reform the PBoC did not shift its monitoring target from the RMB-USD rate to the nominal effective exchange rate. This may be one of the underlying causes of the renminbi crisis in 2015.
Keywords
exchange rate system, reform, GARCH model, nominal effective exchange rate, renminbi, China
Discipline
Asian Studies | Macroeconomics
Research Areas
Macroeconomics
Publication
Singapore Economic Review
First Page
1
Last Page
23
ISSN
0217-5908
Identifier
10.1142/S0217590822500576
Publisher
World Scientific
Citation
YIP, Paul S. L.; TSE, Yiu Kuen; and DONG, Yingjie.
The exchange rate system reform in China: Some important results. (2022). Singapore Economic Review. 1-23.
Available at: https://ink.library.smu.edu.sg/soe_research/2679
Copyright Owner and License
Publisher
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1142/S0217590822500576