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China's Exchange Rate Policy: The Case for Greater Flexibility
Author(s) -
Roberts Ivan,
Tyers Rod
Publication year - 2003
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/1467-8381.00166
Subject(s) - economics , exchange rate regime , exchange rate , china , exchange rate flexibility , optimum currency area , international economics , de facto , context (archaeology) , capital (architecture) , monetary economics , currency crisis , currency , macroeconomics , political science , history , paleontology , archaeology , law , biology
Since the Asian crisis, the merit of the Chinese government's de facto peg to the US Dollar has been the subject of widening debate. This paper reviews the issues surrounding China's currency regime choice and assesses the case for greater fiexibility. Reform era exchange rate policies are examined along with the performance of the economy during and since the Asian crisis. In the Chinese context, the arguments for and against fixed exchange rates are then explained and assessed. Finally, an elemental comparative static macroeconomic model is used to examine the implications of domestic and external shocks under different exchange rate regimes and with differing degrees of capital mobility. The results support the view that more fiexibility would be beneficial to China and that this benefit can be expected to increase as capital mobility increases.