Research On The Theory Framework Of The Exchange Rate Regime Arrangement And On The Choice Of The Exchange Rate Regime

With the entry to the WTO, China is more and more important in the world's economy. But it is also important to China that how to choose appropriate exchange rate regime and to carry out the relative policy in open, macroeconomical surroundings .Based on the history of international exchange rate regime, this paper compares it to the exchange rate regime arrangement nowadays. Superficially, intermediate regimes descend, but in fact, it is a key role in exchange rate regime's reform in many countries, which is basic to the creation of the theory analysis. On the basis of the primary model of the exchange rate regime arrangement and examining the advantages and disadvantages under the fixed peg, floating, and target zones exchange rate regimes, the paper states that none of exchange rate regime is perfect or without costs and risks, nor will it work perfectly on every occasion. The exchange rate regime is appropriate for a country or not depending on its specific economic and financial circumstances. By referring to three theories of the exchange rate regime choice, this paper fully elaborates the effect of these dominant factors on exchange rate regime choice, from which infers the coexistence among various exchange rate regimes determined by the discrepancies among these factors. Then deduces exchange rate regime choice being a dynamic transition process and confirms the intermediate regimes are suitable for the reform of the exchange rate regime. According to the analysis of the dominant factors determing exchange rate regime choice and the exchange rate regime arrangement theory, this paper points out that the fixed peg exchange rate arrangement has achieved success in China since 1994, but facing new environments, there are serious intrinsic deficiencies in it and China does not yet satisfy the requirements for a successful floating exchange rate regime. Thus, establishing RMB exchange rate target zones, in the middle period, is now appropriate for China and this paper in turn comments on the type of the RMB exchange rate target zone. It affirms that it is time for China to change to exchange rate target zone regime from the fixed peg. The Chinese authorities should take active measures to exit from fixed peg regime gradually and moreover, that should be backed by consistent and sustainable macroeconomic policies and relevant structural reforms.