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China’s Options for its Future Exchange Rate Regime from a European Perspective

Postat den 20th August, 2013, 21:01 av Hubert Fromlet, Kalmar

Abstract

China abandoned its formal currency peg to the U.S. dollar in the summer of 2005. Complaints about what – according to many foreign voices – is an undervalued currency have never stopped since the start of this revised exchange rate system, which appears to be similar to what is more commonly known as a “dirty or managed floating” system or a kind of dollar-peg system – a system that is still determined by China’s political leadership rather than by market forces. Currently China is making considerable efforts to internationalize its currency. This strategy should not be equated with a transition to a fully convertible currency any time soon. The latter development assumes much deeper reforms in the domestic financial sector and cross-border financial movements, including the (almost) complete opening of the capital balance. Coming to such a final point should lie a decade or further ahead.  

In the meantime, a lot of small and major financial reform steps have to be taken. One of the great challenges is the design of China’s future exchange rate regime(s). Some interesting questions emerge in this context. Which currency regime options are realistic, both in the shorter term and in the longer run? What is needed for these – theoretically possible – changes of exchange rate regimes to occur? How will these possible changes of exchange rate policy affect China itself as well as the rest of the world? A group of China experts give their views on this in a special survey.

There is no doubt that future changes in China’s exchange rate regime will have an increasing impact on the global economy – and on many companies in China as well as the rest of the world.  Many different factors – including non-economic factors – may influence China’s future choice(s) of the exchange rate regime. China’s road to modifications and real reforms of the exchange rate policy will be part of the changing economic landscape – with effects on Europe, the U.S., and all other continents and countries. In this paper, particular interest is dedicated to the European perspective.

Read the full article here

Hubert Fromlet
Professor of International Economics
Editorial board

 

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Det här inlägget postades den August 20th, 2013, 21:01 och fylls under China

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