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Research On Selection Of Exchange Rate Regime And Financial Crisis For Developing Country

Posted on:2004-12-07Degree:MasterType:Thesis
Country:ChinaCandidate:S L HeFull Text:PDF
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Exchange Rate Regime is a series of arrangements and regulations on how to determine the level and the pattern of the exchange rate by the monetary authorities. Floating exchange rate regime and fixed exchange rate regime are the two basic types. Since the breakdown of the Bretton Woods System in 1973, the selection of exchange rate regimes become diversified. Every monetary authority has its own inclination to choose suitable exchange rate arrangement for the country. However, from the global perspective, more flexible exchange rate arrangement seems to be historical trend.There are abundant theories on the selection of the exchange rate regime, including economic structure theory, policy coordination theory, cost and benefit theory, policy inclination and game theory, two poles theory and so on. Most of the theories above are focused on the study of the relationship between the exchange rate arrangement and macro economy performance, neglecting the links with the financial crisis. Since the breakout of the Asian financial crisis in 1997, unsuitable exchange rate arrangement had been regarded as one of the important contributing factors. Now the connection between the two becomes the new direction in the academic research field.What on earth are the links between the two? What role is played by the exchange rate regime in the financial crisis? The author attempts to do some superficial research on that by the aid of M-F Model.Most of the developed countries choose floating exchange rate system to support their economies, while most of the developing countries are forced to select fixed pegged exchange rate arrangement. For their poor domestic economic and financial condition, they are confronted by the dilemma: non-adaptability for both two types of regimes. The root of the dilemma is the asymmetry of the currency in the international monetary system. The author makes some analysis on the possibilities of the financial crisis under the two types of .regimes for the developing countries. We find that the concentration and accumulation of the exchange rate risks are huge under the fixed pegged exchange rate arrangement, so it is easy to induce the attack of the enormous hot money. The currency crisis is more likely to break out. While under the independent floating exchange regime, it is easy to induce the breakout of the banking crisis for the big fluctuation and vulnerability of the exchange rate (Domac & Peria, 2000).In fact, no currency regime is right for all countries or at all times (Frenkle, 1999). The selection of the exchange rate regime of other developing countries provides some valuable lessons for RMB exchange rate reform. As the biggest of the developing country, China has many similarities with crisis countries. The reform of the RMB exchange rate regime is also faced by the predicament. After entry WTO, China will be more open and capital control will also be looser step by step. Under such background, it is necessary to have more elastic exchange rate regime. According to the author, establishing RMB exchange rate zone maybe favorite choice.
Keywords/Search Tags:Exchange rate regime, financial crisis, fixed pegged exchange rate regime, floating exchange rate regime
PDF Full Text Request
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