The Characteristic Of The New RMB Exchange Rate Mechanism: A Empirical Analysis

As China's economic strength has grown, the RMB exchange rate mechanism becomes the focus of attention at home and abroad. The People's Bank of China announced the RMB exchange rate mechanism reform programme on July 21st, 2005: the RMB exchange rate is no longer pegged U.S. dollars, but the introduction of more flexible based on market supply and demand, adjusting the reference to a basket of currencies, managed floating rate mechanism. However, the voice of the major industrialized countries (G7) isn't changed. They still want China to speed up RMB appreciation and to reshape the RMB exchange rate mechanism. Their reason is that the fluctuation of RMB exchange rate is non-obvious and that RMB still pegged U.S. dollars.This paper analyses the new RMB exchange rate mechanism from theoretical and empirical view in order to demonstrate the characteristic of the new mechanism objectively. The paper is divided into three chapters. The chapter 1 introduces the principle of exchange rate mechanisms and compares the exchange rate mechanism of developed countries and the new developing countries. The chapter 2 analyses the cause and the content of the reform of the RMB exchange rate mechanism, then analyses the characteristic of the new mechanism. The chapter 3 applies the logarithm one-order differences models to be in progress to multivariant regression analysis of exchange rates for the RMB against Swiss Franc, making an explanation variable having U. S. dollar, Euro ,yen, Hong Kong dollar, won, new Taiwan dollar, Australia dollar and pound sterling.The results of empirical analysis show that RMB does not peg U. S. dollar after the reform and the elasticity of RMB to U. S. dollar has bigger increasing. Besides, the reference to a basket of currencies of RMB is playing role. The result of model indicates that U. S. dollar, Euro, yen, Hong Kong dollar, won, and Australia dollar are important currencies in the basket of currencies of RMB.