Problems And Solutions On Currency Mismatch In China

Currency mismatch refers to the phenomenon that an interest entity's net value and / or net income will be affected by exchange rate movements in the international market transactions because it use different kinds of currency to represent and calculate the value of its assets and liabilities, income and expenditure. Since Asia financial crisis, China's foreign exchange reserves have been under the tendency of rising, the pressure of RMB appreciation has also been growing, and currency mismatch has become a major problem of the system of RMB exchange rate and domestic financial reform. It is of great practical significance to measure the degree of currency mismatch in China accurately, to analyze the reasons of the formation, the unique characterizations, and the negative effects on national economy, as well as to prevent and control the risks of it.This paper firstly sorts out the related literature about and on currency mismatch and further researches the relevant issue on currency mismatch in China, then use AECM indicators which was put forward by Goldstein and Turner and China's relevant data to calculate the degree of China's currency mismatch. Results show that a degree of currency mismatch exists in our country. On the basis of Empirical testing, this paper analyze the causes and unique characteristics of currency mismatch in China in comparison with other developing countries, as well as its negative impact on China's national economy. Finally, in the light of the characteristics of currency mismatch in China, we have made policy recommendations to control and resolve the risks of currency mismatch on the basis of previous studies.On research methods, the paper choose to use empirical analysis combined with experiencing analysis. Firstly, empirical estimation was used to test the degree of currency mismatch in China, and then experiencing analysis was made on the causes and unique characteristics of currency mismatch in China. Finally countermeasures and resolutions were put forward on the problem on this basis. This paper is divided into five parts. The first part is introduction, which has introduced the background of this study, the main innovation and gaps of the essay, as well as research methods and the structure of the paper. The second part is literature review, which has straightened out and categorized, commented and summarized the relevant literature both at home and abroad. The third part makes use of AECM indicators, measurement methods, and the relevant data from the year 1996 to 2005 to practically test the seriousness of China's currency mismatch, and makes analysis and interpretation on the results of the empirical test. Part IV makes analysis on the causes of currency mismatch in China, the unique characteristics of the problem, and the negative impact of currency mismatch on national economy. In part V this article put forward policy recommendations and solution framework towards the problem of currency mismatch in China on the basis of the empirical test results and conclusions made by scholars at home and abroad.