Chinese Exchange Rate Regime Based On The Intermediate System Of Vanishing "choice

The choice of exchange rate regime is significant for a country in the open economy. Theories concerning it are various and diverse which can be divided into two phases in the main, including the theoretical disputes on traditional "fixed and floating" and the current "two poles and intermediate". In the latter dispute, "the hypothesis of the vanishing intermediate regime" came from the analyses of Latin American currency crisis and Asian financial turbulence in 1990s, based on classical "Mundell Impossible Trinity Model" and had great influence on both theory and practice. This hypothesis brought forward a challenging thesis: Only the two poles are maintainable, and intermediate regimes are vanishing. Although it has aroused doubts from many aspects unavoidably, its analysis of the trend of exchange rate regimes is a useful guide in practice because of its relative logical and rigorous theoretical support and close relation to the fact. It has been validated by demonstrations from many ways and has been regarded as an important representation of the modern mainstream theory around the choice of exchange rate regimes.The paper bases on "the hypothesis of the vanishing intermediate regime", expatiates the main thought and talking points of this theory. It introduces the "Extend Triangle Model" by Gang Yi specially, since this new model has developed the traditional "Mundell Impossible Trinity", hurdled its limitation and provided a comparative theoretical foundation for the "corner solution hypothesis". It can be seen that, this theory is not so suitable for China at present, but it is very meaningful for our choice of RMB exchange rate regime in long term, by comparing our actual condition with the presupposition of the theory. It is quite clear that, our final choice should be and only will be the two poles.Since the currency crisis theory and the theory of Trilemma are the most important theoretical bases of "the hypothesis of the vanishing intermediate regime", then the article analyzes the corner solution of China from these two aspects. The analysis shows that, fixed exchange rate regime has intrinsic instability and is vulnerable to speculative attacks. Furthermore, under fixed exchange rate regime, monetary policy will lose its independence. So it is impossible for China to choose this corner. The paper discusses the other corner--Independent floating system in...