Establishment Of Target-Zone Exchange Rate Regime In China

The thesis mainly focuses on the revolution of RMB exchange rate regime. China's maintenance of a de fact peg against the US dollar is out of time. The future of RMB exchange rate regime is free float (or Asian Yen). Target-zone exchange regime is an alternative arrangement in that process.The thesis is organized as follows.Section one concentrates on context and existing literature about this thesis and reveals the tendency of exchange rate regime which instructs the RMB exchange rate regime rebuild.Section Two reviews the evolution of China's exchange rate regime and calculates the nominal and real effective exchange rate of RMB. In the last part of this section, the advantage and shortage of current are deeply discussed.The core of this thesis is from Section Three to Section Five. Section Three describes concept of the equilibrium exchange rate. In this Section, writer compares the purchasing power parity (PPP) approach and Fundamental equilibrium exchange rate approach and estimates the equilibrium exchange rate of the RMB between 1994 and 2003 is undervalued by 7.53% on the basis of Fundamental equilibrium exchange rate.Section Four is an important part of the thesis. A possibility of pegging to Basket Currency is discussed in this section. The experience of Singapore and Thai contribute the constitution of Basket Currency. In author opinion, Japanese Yen and Euro should be increased in the weight of Basket Currency.The last section constructs a narrow band, open and hard target-zone exchange rate regime of RMB which is practical and operable. The other concerned suggestion is mentioned in the end of thesis.