The Peg Is Not Maintenance And Exit Strategy

Since the nineteenth century, there has been an ongoing debate on the exchange rate regime choice. The debate has gained fresh vigor since the series of financial and monetary crises in some emerging market countries during the late 1990s, and deep researches were made to explain the relationship between the exchange rate regime and the currency crisis. The findings show that under the perfect the capital mobility, the pegged exchange rate regimes are the sources of the currency crisis. So it is important to make deep research about the Sustainability of the pegged exchange rate regimes and the strategies for exiting from the pegged exchange rate regimes.The study finds that the pegged exchange rate regime is unsustainable under the open economy conditions. At first, I deplore the unsustainability of the pegged exchange rate regimes from the evolution of the international monetary system perspective according different classification of the exchange rate regime. The findings indicate that as countries integrating the global economy, they tend to give up the pegged exchange rate regimes, and adopt either fully fixed or fully flexible exchange rate arrangement. Therefore the pegged exchange rate arrangements become fewer and fewer, but the fixed and the floating become more and more. And then the paper explores the unsustainability of the pegged exchange rate regimes from the currency crisis theory and practice perspectives. I think the unsustainability of the pegged exchange rate regimes is endogenous because the discipline hypothesis and credibility of the pegged regimes are weaker and uncredible under the perfect capital mobility. The study also analyses the collapse path and mechanism of the pegged regime under the one-way speculative attack based on the currency crisis model. I also investigate empirically the relationship between the exchange rate regime and the currency crisis and find that the pegged regimes are more vulnerable to currency crisis.After analyzing the unsustainability of the pegged exchange rate regimes, the part II of the paper focuses on the strategies for exiting fromthe pegged exchange rate regimes. At first, the paper develops the exiting model based on the currency crisis. I put the fiscal shock into the first generation currency crisis to determine the optimal time to exiting from the pegged exchange rate regimes when the fiscal shocks happen, and then incorporate the bank system into the second generation currency model to analyze the different exiting strategies under the outside shock. The paper also analyses empirically the determinants of exits from the pegged exchange rate regimes, and researches some countries' typical exiting cases.At last, the paper discusses some issues about the reform of RMB's exchange rate regime. Considering the internal factors in our country, the paper puts forward to build the managed floating plus as the middle-term goal of the reform of RMB's exchange rate regime.