Choice Of Exchange Rate Regime After China's Accession To The Wto

A new wave of globalization, well under way since surged in 1980s, has been strengthening the economic and trade links between countries. Goods and capital move across the border much easily today than it did ever in the contemporary history. Globalization, on the one hand, delivered the higher economic growth to the countries involved. But, on the other hand, it also brought severe challenges to the globalizers, especially those from the developing world, evidenced by high frequent currency and financial crises in emerging market countries. Developing countries increasingly found itself in a difficult situation to defend a stable fixed exchange rate regime. It seems that if developing globalizers resist the change of its exchange rate regime, the crisis would do it for them.China is among those globalizers from developing world but luckily escaped the crisis, due largely that China followed its own agenda of opening-up. But China's accession to WTO marks a new turn in its way of handling globalization. China has to follow the WTO rule as well as other international practices, exposing its economy to volatile external world. China will quickly find itself in the similar situation of crisis-inflicted developing countries, given the rigidity nature of China's current exchange rate regime. The reform is inevitable. This study aims to shed some light on China's exchange rate regime choice in the context of WTO membership.The dissertation is organized as follows. The first chapter will introduce the classification of exchange rate regime and how the exchange rate regime evolved overtime. One finding is that the exiting exchange rate regime always did not serve well the need of economy, thus may trace back to the conflict between internal and external goal of a country. In this chapter, the author also argues that the developing countries, or peripheral ones, faced quite different constraints in their exchange rate regime choice, compared to developed core countries. The summery and review of exiting exchange rate regime choice theory literature are done in second chapter. Among other things, the fixed and floating exchange rate dispute, optimum currency area, open economy macroeconomic model, design of intermediate exchange rate regime, currency crisis model and corner solution, exchange rate regime choice in developing countries and the positive study on exchange rate regime are discussed intensively. One finding is that the mainstream exchange rate regime literatures are always critical to the exitingprevailing exchange rate regime and resort to ever proved unsuccessful regimes to cure the problem in sight. The pundits in this field long have been inflicted by the dilemma of that an exchange rate regime cannot deliver both credibility and flexibility at the same time. Although the existing literature failed to provide clear-cut criterion for choice, it did develop some tips that would be useful when the choice has to be made. Third chapter turns to the evaluation of China's current exchange rate regime. Both the merits and drawbacks of current regime have been identified. One finding is that the current regime, which did help China weather the storm of Asian financial crisis, may not survive in a more integrated economy, due to its low efficiency, high cost and tying too tight the hand of monetary policy. The 4th chapter examines the effect of China's WTO accession on the stability of current exchange regime through the channel of trade, capital flow, balance of international payment and financial service liberalization provided the commitment China made during the accession would be fulfilled without discount. One of conclusions drawn from the analysis is that flexibility of China's exchange rate regime should be increased to cushion the external shocks whose effects tend to amplify in new environment. The fifth chapter comes to touch upon concrete policy issue-the design of China's exchange rate regime and related institutional arrangements. After balancing the needs and constraints, a flexibility...