Choice Of Exchange Rate Regime:General Theory And Macroeconomic Impact Analysis

The choice of exchange rate regime has always been a controversial topic in international financial circles,and its related theories have been constantly adjusted and improved with the changes of international economic environment.Under the influence of globalization,the exchange rate level,as an important economic indicator,not only affects a country’s balance of payments,but also relates to the adjustment and stable operation of the whole economic system.As the most important and direct tool in the exchange rate policy,the exchange rate regime plays a key role in the economic development of all countries.In recent years,from the practice of the exchange rate regime in various countries around the world,some countries’ exchange rate regime is in the process of steady adjustment,and the appropriate exchange rate regime makes their internal and external economies operate steadily.However,some countries choose inappropriate exchange rate regime,which leads to high inflation and large fluctuation of exchange rate.Since China’s "8.11" exchange rate reform in 2015,the flexibility of the exchange rate regime has gradually improved,and the rationality and effectiveness of the reform is of great significance to the process of RMB internationalization.Therefore,how to choose the optimal exchange rate regime is still an important problem to be solved.From this point of view,this paper puts forward the general theory of exchange rate regime choice,discusses the general law of exchange rate regime choice,and reveals the dynamics of optimal exchange rate regime choice.Then,from an empirical perspective,this paper verifies the dynamics of optimal exchange rate regime choice with the dynamic evolution trend of the global exchange rate regime,analyzes the impact of the exchange rate regime on the macroeconomy in two aspects of economic growth and macroeconomic stability,and further proves the importance of the choice of the optimal exchange rate regime.Firstly,this paper briefly describes the changes of the international monetary system and combs the relevant theoretical development of the exchange rate regime along the time context.When analyzing the classification of exchange rate regime,it is found that there are great differences among the classification methods of exchange rate regime,and there is no obvious standard to evaluate the advantages and disadvantages of the classification method of the exchange rate regime.Considering various factors,this paper selects the IMF de facto classification as the main research basis.Then based on the theoretical development of exchange rate regime,this paper puts forward a general theory are as follows:there is a theoretical optimal exchange rate regime for different countries or different development stages of a country;The factors that determine the optimal exchange rate regime include the overall national economic development level and overall development stage,the overall economy of scale,the level of financial development,trade openness and trade geographic concentration,state of international reserves and current account,trade shock,the degree of economic and political stability,etc;they have different weights on the choice of exchange rate regime in countries at different stages of development,and these factors and their combination determine the optimal or most appropriate exchange rate regime for a particular country at a particular stage;the optimal exchange rate regime in theory is dynamic and changes with different countries or different development stages of a country.Moreover,this theory of exchange rate regime is proved by international experience.Considering the current state of China,this paper finds that the floating exchange rate regime is more appropriate for the RMB exchange rate regime,but the probability of choosing the intermediate exchange rate regime increases significantly before and after the international financial crisis.Finally,based on IMF de facto classification from 1999 to 2018,this paper analyzes the choice of exchange rate regime from three aspects:the evolution trend of global exchange rate regime,economic growth and macroeconomic fluctuations.The main conclusions are as follows:(1)From the evolution trend of exchange rate regime:hard peg,intermediate exchange rate regime and floating regime are strongly state-dependent,and the intermediate exchange rate regime has not disappeared,but shown a tendency to expand,and the diversification pattern will still be an important feature of the global exchange rate regime;the transformation of the global exchange rate regime has slowed down significantly,and various economies are afraid of transformation;Since the reform of the RMB exchange rate regime was fully implemented in 1994,the flexibility of the RMB exchange rate regime has been gradually improved and has entered a state of steady adjustment.(2)The impact of exchange rate regime on economic growth is heterogeneous.For developed countries,the exchange rate regime has no significant effect on economic growth;from the perspective of emerging market countries,the intermediate exchange rate regime has an obvious positive effect on economic growth;for other developing countries,the less flexible the exchange rate regime,the more conducive to their economic growth.(3)The performance of the exchange rate regime is directly related to the source and category of economic shocks.Based on the theoretical analysis,this paper uses the data of 108 countries for empirical research,focusing on the adjustment differences of different exchange rate regimes on macroeconomic fluctuations.The increase of tariff rate and interest rate has both positive and negative effects on a country’s economy.On the one hand it can control inflation,on the other hand it will have a negative impact on economic growth.However,under different exchange rate regimes,the intensity and persistence of their effects are different.Based on the above research results,this paper puts forward the policy recommendations of RMB exchange rate regime.From general theory and international experience of exchange regime choice,dynamic choice of exchange rate regime has very important significance for China.In the some stage,RMB exchange rate regime must be based on the overall economic situation,financial situation and international economic situation changes for discretion.From the analysis results,RMB exchange rate regime is more suitable to choose floating exchange rate regime in most of the time,but before and after the international financial crisis,the probability of choosing intermediate exchange rate regime has risen sharply.Therefore,China should continue to reform its exchange rate regime with greater flexibility,but not be rushed to make the exchange rate regime more flexible too quickly.Keeping RMB exchange rate regime in the intermediate exchange rate regime is conducive to resisting international economic and financial instability,and is conducive to the sustained growth of China’s economy.In addition,when formulating other economic policies,we should fully consider the fact that China is in the stage of an intermediate exchange rate regime,keep RMB exchange rate basically stable at a balanced and reasonable level,and steadily promote RMB internationalization process.