The Choice Of RMB Exchange Rate Regime

Recently, the choice of RMB exchange rate regime has been the focus all over the world. With China's entry into WTO and the gradual open-up of capital account, the current RMB exchange rate regime can't satisfy the demands of China's economic development, so China should reform the exchange rate regime. Therefore, the analysis, of the future reform for our exchange rate regime, is of realistic significance.Referring to the existing research achievements at home and abroad, this thesis makes the research on the future choice of exchange rate target zone. Firstly, it induces and comments on the theory of exchange rate target zone. Secondly, it reviews the evolutionary process and predicts the future choice of RMB exchange rate regime. Thirdly, it analyzes and tests the scheme taking the implementation of exchange rate target zone as the choice of RMB exchange rate regime in the transitional period. Lastly, it puts forward the suggestions for implementing exchange rate target zone. The paper consists of 4 chapters, and the contents of each are as follows:Chapter 1, including three parts, introduces the theory of exchange rate target zone. The first part discusses the definition, the origin, the categories and the characteristics of exchange rate target zone. The second part analyzes "Williamson Project" and Krugman Exchange Rate Target Zone Model, and further indicates the Honeymoon Effect as well as Smooth Pasting Condition of exchange rate target zone. The last part presents the empirical analysis on Krugman's fundamental model, model revisions and theoretical extensions.Chapter 2 discusses the evolvement and future choice of RMB exchange rate regime. After reviewing the evolvement of RMB exchange rate regime which includes six phases, this chapter analyses the existing problems and challenges of current RMB exchange rate regime in the future. The conclusion is that current RMB exchange rate regime needs to be reformed. Finally, this chapter advises the future choice of RMB exchange rate regime, which is made by keeping current RMB exchange rate regime in the short run, adopting exchange rate target zone in the medium term and reaching floating rate regime in the long run.Chapter 3 discusses at first the advantages of RMB exchange rate target zone, such as gradual open-up of capital account, ample foreign exchange reserve, appropriate & rapid economic growth, the reduction of interest rate spreads between China and other countries, and confidence in RMB at home and abroad etc.. Then this chapter indicates the benefits that China will attain if RMB exchange rate target zone is put in practice. At last the chapter introduces the lessons China should learn from other countries adopting exchange rate target zone and the revelations towards China itself.Chapter 4 suggests the scheme of RMB exchange rate target zone. First, this chapter estimates the central equilibrium exchange rate of RMB exchange rate target zone, concluding that the exchange rate of China is far from tendency deviation and that as a result our reform should be carried out in a progressive way rather than in a revolutionary way. Second, it analyses other factors of RMB exchange rate target zone on the basis of BEER model, including the width of the exchange rate band, interventions of central bank and other policies concerned.On the basis of the existing research achievements, this thesis is also marked with some innovation and features, which is embodied in the three aspects as follows: by combining the theory of exchange rate target zone into the realistic conditions of China, it makes the research on the future choice of RMB exchange rate regime as Chinese economy opens up further; by combining the qualitative research into quantitative research, it defines the equilibrium level of exchange rate target zone based on the BEER model; by taking RMB equilibrium exchange rate as the core, it visualizes and frames the future RMB exchange rate target zone.