The Comparative Study Of Countries' Retreat From Their Fixed Peg Arrangements

In 1990s, Scholars intensively focus on the exchange rate arrangements of developing countries and new economic entities against the background of the high liquidity of international capital. Recently, they agreed on a so-called "New Consensus" that whoever adopts the fixed exchange rate would regard it as a kind of "Nominal Anchor", in the long run, the adjustable fixed peg arrangement is only a transitional policy full of instability and can easily become the trigger of currency crises. Therefore, people should design a "retreat strategy" whenever it adopts this kind of exchange rate regime. When there is increasing pressure of appreciation of RMB, it is necessary for us to take a further look into this new focus.Basically, I consent on this "New Consensus". Based on the principle of the impossible trinity of Krugman, here I point out 6 main reasons for the developing countries' over high cost of adopting fixed peg arrangement by analyzing the recently influential theories on this topic. Actually, Frankel of Harvard University have told us that there is no panacea in terms of exchange rate regime arrangement. Whether there is a best arrangement for a single country depends on the special situation of this country. And it is not necessary for every country that had already retreated from the fixed peg regime to enter into an independent floating immediately, the exchange rate arrangement should be different case by case. Above all, learning from all other countries but not simply copying some country's experience is important.Thailand and Britain were forced to quit the fixed peg exchange rate under the great depreciation pressure of their currencies, while Japan and Germany under the great appreciation one. Among them, Thailand and Britain were involved into serious currency crises while Chile quitted the fixed peg exchange rate regime successfully after learning the lesson of previous financial crisis. This experience could be regarded as an excellent example together with Germany's. As a developing country, China is currently under the internal and external appreciation pressure of RMB, which puts China into the same situation as Japanand Germany did 20 years ago.In conclusion, it is quite nature that the currency of a country whose economy is growing up will be faced with some kind of appreciation pressure. Choosing the progressive and solid exchange rate reform and focusing on domestic economic policies more than exchange rate policies are the two major lessons we can learn from above mentioned countries. It is on this basis that we study the opportunity, condition and background for China to quit the fixed peg arrangement, which would be more objective and comprehensive.