The Practice Of Exiting From Pegged Exchange Rate In China

After the system of Breton disintegrated in 1973, a lot of developing countrieschose the regime of pegging exchange rate, but the financial crisis and economiccrisis break out successively in these developing countries since 1990s. For thisreason, many researchers maintain the regime of pegging exchange rate is animportant reason of economic crisis, thus, studies on how to exit from the regime ofpegging exchange rate in the developing countries become one of hot problems ininternational finance.After the Asian Financial Crisis in 1997, the trend of RMB pegging to U.S.dollar was more obvious. However with the development of economy andenhancement of the capital circulation in our country, the drawbacks of the regime ofpegging exchange rate appear little by little. On July 21, 2005, our governmentreformed the exchange rate regime, exiting from the regime of pegging exchange rate.Taking this as the background and the clue, this paper firstly reviews the course ofreforming of the regime of RMB exchange rate. Secondly, this paper analyzes thereasons of RMB exchange rate pegging to US dollar and its drawback to oureconomic growth on the basis of the tend of the regime of pegging exchange rate indeveloping country. Then we further the analyze of RMB reform on July 21, 2005 onthe grounds of theory of "Exit Strategy" and the experiences and the lessons fromthree countries that experienced the exiting from pegging regime of exchange rate.Lastly, we evaluate the real effect of RMB regime reform on July 21, 2005 on theshort run from empirical evidence. The conclusion of empirical study is that theproportion of U.S. dollar in the basket is still very large, but it reduces gradually andthe proportion of other currencies is increasing. This reflects the principles ofinitiative, controllability and gradualness during the course of the reform of RMBexchange rate regime. The author holds that: we should expedite the reform of RMBexchange rate regime on the foundation of these "three principles" and other measureswhich match the reform of RMB exchange rate regime, which will pour much morenew power into economic growth of our country in the future.