The Pegged Exchange Rate Regime "exit Strategy" For Study

Currency crises occurred in many developing economies in the 1990s',which caused people to doubt the sustainability of the conventional peg.This led to the birth of the "Exit Strategy" theory.The so-called "Exit Strategy" means the exchange rate regime of a country switches from the peg to some more flexible exchange rate arrangements.The main content of "Exit Strategy" theory includes the optimum exit moment,the appropriate exit method and the corresponding exit arrangements.A lot of research has been done after the "Exit Strategy" theory appeared,but real renovations were quite few.At present there are still some unsolved questions about the "Exit Strategy" theory,and this provides enough space for the author to write this article.On the basis of predecessors' researching result,the author answers the three basic questions which constitute the main content of the "Exit Strategy" theory:when to exit, where to exit and how to exit.First and foremost,the author established a cost-revenue model to analyze the best time to implement the "Exit Strategy";secondly,the author separates the exit methods into two categories and uses the former model to compare their merits and shortcomings;finally,the author elaborates on the corresponding arrangements to ensure a peaceful exit.These three questions and their answers constitute the main content of the first half of this article.The second half of this article focuses on the on-going reforms of RMB's exchange rate regime.Firstly,the author classifies the present exchange rate regime of RMB into the crawling-pegs with the modified LYS method;secondly,the author compares the costs and benefits of RMB's former and present exchange rate regimes so as to explain the true reason for RMB's exit;thirdly,the author makes an empirical research about the influence of RMB's fluctuations on domestic inflation,and puts forward the concept of "syndrome of RMB's appreciation";finally,the author analyze the causes of "syndrome of RMB's appreciation" and advises the government to adopt "Both-Exit Strategy".The author also gives the concrete steps of "Both-Exit Strategy" and has a brief look about the future of RMB's internationalization.The author draws three conclusions from the above research:1.the optimum moment to exit usually happens after the original peg produces net cost,and it is later than the time which traditional "Exit Strategy" considers best;2.the gradual exit of RMB conforms to China's situation,but it also produces some side-effects;3.with the strengthening of RMB's exchange rate elasticity,China will open its capital account step by step,which can be called the "Both-Exit Strategy".