Study On The Problem Of Choosing A Suitable Exchange Rate System

The further reinforcement of the economic globalization and the frequentoutbreak of the international financial crises have made the problem of choosing asuitable exchange rate system the focus of the academic discussion in internationalfinance. And also makes it a urgent problem for every country in the world. Theexchange rate, which is an important variable to the macro economy of a country,has a special important influence on the economic operation in the open economy.And this influence works through idiographic exchange rate system arrangement. Asa result, it is very important to choose a suitable exchange rate system for the benefitof maintaining the macro economic stability, constructing a well functional financialsystem and realizing the financial sustainable development. Before the maincountries practiced floating exchange rate system in 1973, the discussion on thechoose of the exchange rate system emphasized on the design of the global exchangerate system, including the debate on the Gold system and the Bretton Woods system.When it comes to the floating exchange rate system period, the academe graduallybased on single country, focused on the exchange rate system of the developingcountries and the transitional economy. As far as China, with its huge economicgross, is concerned, its economic development will be accompanied by itscontinuously deepening economic open. Because the exchange rate system will havegreat influence on the working method and degree of the element and capital flow oneconomy, it is necessary to research the policy to solve the problem of choosing asuitable exchange rate system, with regarding the present exchange rate system in China. China has practiced the single and manageable floating exchange rate system, which is based on the supply and demand condition in the market. However after the Asian Financial Crisis in 1997, China's exchange rate system has actually changed to the de facto fixed exchange rate system pegging singly to US dollar. And it continues from then on. In this period, some native scholars tried some research on the forming mechanism of China's exchange rate and the advantages or disadvantages of the US dollar pegged exchange rate system. As a matter of fact, the theory of choosing a suitable exchange rate system should be enriched and vary with the change of the domestic economic situation and the international economic environment. Meanwhile it should also focuses on the cooperation between the international harmony and the foreign exchange policy, considering the systematic element to prevent the financial crisis. On base of all these, this paper researches the theory of choosing a suitable exchange rate system, which is followed by the demonstrational analyses, and tries to solving the problem of RMB exchange rate system.This paper begins with the basic conception and the classification of the exchange rate system, introduces evolvement of the exchange rate system and its theories. Based on it, the paper focuses on some theories of choosing a suitable exchange rate system in developing countries, such as the Adhering Theory, the Original Sin Theory, the Hollow Theory, the Float-fearing Theory and the Withdraw Strategy. Following this conception and theories, this paper, combing with the backward economic situation, the reform policy and the globalization effect in developing countries, makes some demonstrational analyses. These analyses range from the relationship between the exchange rate system and the domestic economic target to the relationship between the exchange rate system and the foreign economic environment, also range from the relationship between the exchange rate system and its evolvement to the relationship between the exchange rate system and the financial crises. Finally this paper through analyzing the advantages or disadvantages and the applicability of RMB exchange rate system, explicates the aforementionedconceptions and theories. After researches the principia, direction and some theories of choosing a suitable RMB exchange rate system, this paper draws to the conclusion that we should reform our exchange rate system in three strategic steps.This paper combining the review of the theories of choosing a suitable exchange rate system in developing countries with the present real situation China confronted, such as the open and reform, the economic transition and the economic integration. And what's more, it touches on the popular topic of RMB exchange rate. And in this background, this paper analyses the applicability of RMB exchange rate system, and comes to the conclusion, that is to maintain the US dollar pegged exchange rate system in the short time, to adopt real manageable floating exchange rate system then, and to practice complete independent floating exchange rate system in the long run.