Studies On The Super-Stabilization Of RMB Nominal Exchange Rate

Since the reform of exchange rate regime in 1994, the NER super-stabilization makes our exchange rate regime convert from nominal managed floating to actual fixed peg. This is related to special exchange rate formation system, which include compulsory purchase and sale of forex in current account, rigorous capital supervision, trade restraint and frequent intervention in forex market. But the more important cause is that it is supported by fundamental economic factors. The estimation of equilibrium exchange rate model indicates that REER of RMB is basically equilibrium, even though it is under evaluated in middle-term view influenced by US Dollar continuously depreciation, RMB is over evaluated in the long-term view. So the viewpoint of under evaluation is short ofbasis.Quantitative estimation indicates that even though related to export and FDI negatively, REER of RMB is related to trade surplus positively. This means that China's sustaining trade surplus and economy growth relies on products' strong real competitiveness in the world and intrinsic motive force, not on devaluation of RMB. Continuously increase of forex reserve caused by the super-stabilization of NER bring some negative effects and potential risks to economy, which include sustained counteracting pressure on monetary policy, insufficient use of domestic savings and resources, increase of risk of exchange rate fluctuation and devaluation of forex reserve, decrease of enterprises real competitiveness in the world by high moral risk.The costs of maintenance a pegged system is continuously increasing, and the scope is narrowing in the variation of internal and external environment. It makes necessary and urgent to exit the pegged. The feasible way to reform exchange rate mechanism is ameliaorating managed floating system. These factors provide reform good conditions, which include the trend of international exchange rate regime, our experience accumulation, basically equilibrium of current exchange rate, excellent economic situation and enterprises' high abilities to resist risks.