| Inappropriate exchange rate regime could not escape blame for both Mexican financial crisis in 1994 and Asian financial crisis in 1997. After Asia crisis, China has held its exchange rate stable and kept an even harder administration on its foreign exchange. All these policies have once successfully strengthened the public confidence in Chinese currency, keeping it away from being severely attacked by the crisis. As time goes on, however, the situation has changed greatly. China's entry into the World Trade Organization (WTO) in 2001 will bring us trade liberalization and a wider open of domestic financial markets that have a strong tendency to enter into the financial integration of the world. In these circumstances, it is hard to keep the tight dollar peg in place any longer; furthermore, it could probably cause the outbreak of crisis of balance of payments. This thesis carries some weight raising a significant look at Chinese currency regime reform, which is influential in improving China's economy.Whether currency regime, floating or fixed, is more advantageous has been discussed for centuries. In fact, the appropriate exchange rate regime varies depending on the specific circumstances of the country in question and depending on the circumstances of the time period in question. Professor Jeffrey A. Frankel at Harvard University states that no single currency regime is best for all countries, and that even for a given country it may be that no single currency regime is best for all time.In order to analyze the issue about China's currency regimereform, we must answer the following three questions: firstly, what is Chinese currency regime; secondly, how does it work; thirdly, how to reform it. All these three have been shown in Chapters three and four. Prior to the specific study on Chinese reforms, however, a general theoretical model is needed, which is discussed in Chapter two. As no truth in the world can be absolutely correct, neither could the model be suitable beyond its premise——the certain historical period with its situation. The logic structure of the thesis is as the following: Based on full knowledge of the present background——the international globalization of financial markets, a model called the theory on the crisis of balance of payments, with the help of which we focus our attention on Chinese specific currency regime question then, is established and supposed to explain the intrinsic instability of intermediate regimes. This thesis concentrates on the theme that, though the realization of pure floating is the final target, the reform should be advanced gradually in due order with the perfecting of the managed floating as the main task.Chapter one tells us that financial markets are steadily becoming more and more integrated internationally in recent years. As capital funds can flow freely from one financial market to another, from one country to another, they link all the markets together and make great influence on the exchange relationship between different currencies——the exchange rate. So in order to analyze the regime mechanism and discuss the reforms, we should have a look at how the worldwide financial markets work. This chapter consists of three parts: the concept, causes and characters of financial integration. Chapter two makes an analysis of a general tendencytoward either extreme regimes and away from the middle ones. In a world of freely flowing capital, economies with intermediate regimes are subject to the foreign disturbances and increasingly pushed to choose between the polar cases of free float and rigid peg, with the middle ones no longer tenable. Firstly, three important concepts are described: exchange rate system, polar regime and intermediate regime. Out of 186 economies, the International Monetary Fund (IMF) classifies 83 as floating and 48 as following rigid pegs (currency boards or monetary unions). This leaves 55 following middle regimes. Statistics suggest that more and more economies are fleeing the soft middle ground of... |
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