| With the increase of exports from China in recent years, some countries have begun to concern about the negative impact of the cheap products from China on their domestic markets. Some countries request that RMB should appreciate so that they can reduce their trade deficits. Two treasury secretaries of the United States have both formally requested the appreciation of RMB. At the G8 Summit this February, Finance Minister of Japan made a lengthy presentation with the main topic that RMB should appreciate.Recently, the valuation of RMB becomes a hot topic in economics both domestically and internationally. This paper discusses about the selection of various currency exchange regimes and their future goals and prospects. The analysis starts from the introduction of the theory of exchange rates and the relevant economic factors that affect exchange rates. The analysis is based on the following theories: the theory of macro-stabilization policy in open economy, the Mundell-Fleming model, originated by Professor Robert A Mundell of the Department of Economics Columbia University, who also founded the theory of the optimum currency areas; another theory is the Trilemma by Paul Krugman. It is concluded that the current stable exchange regime serves as an important guarantee for the fast economic development in China.This paper is divided in three parts.Part One (Chapter 1): The paper first introduces the theory of exchange rates and major factors that affect the exchange rates from the perspective of western economics in order to provide a general overview of the foundation of exchange rates. Then, the paper introduces the classification of various exchange rate regimes by the International Monetary Fund (IMF), analyzes the effect of relevant economic factors on the exchange rates, and thus furnishes a thorough understanding of the exchange rates including the exchange rates of RMB.Part Two (Chapter 2): The paper then provides an in-depth analysis of the dynamics of RMB exchange rates. First, the paper discusses the issue ofimplementing a more optimum exchange rate policy for RMB based on current Chinese economic conditions in response to the strong request from the US and Japan to appreciate the RMB. Second, based on the analysis of the underlying assumptions of the Mundell-Fleming model and the current government control of interest rates and foreign currencies, the paper points out the necessity to improve the Mundell-Fleming model according to the real conditions of the current Chinese macro-economy, and thus to improve the independence and effectiveness of the monetary policy under a fixed exchange rate regime. Third, the paper states that the current RMB exchange rate regime basically conforms to the goals of economic development and the requirements for adequate employment, through the analysis of Krugman "Trilemma" and Balassa Samuelson "Balassa-Samuelson Hypothesis" in combination with the study of Chinese economic development. Lastly, the paper describes the goals and prospects for the Chinese foreign exchange rate regime and points out the practical issues stemmed from the reform in the exchange rate regime.Part Three (Chapter 3): The paper studies Asian currencies cooperation policies. The Asian financial crisis has brought to the attention of Asian countries the importance of the regional financial cooperation. The request for the cooperation in currencies and financial services becomes stronger and the steps are quickened. As a big country in Asia, China should actively participate in the cooperation in currency and financial policies between Asian countries and play an important role in the cooperation.In summary, the paper emphasizes that the current stable RMB exchange rate regime does not need to be modified as long as it can keep up with Chinese economic development. A stable exchange rate regime wins the confidence in RMB both domestically and internationally, and thus China is able to ensure rapid economic development. Therefore, the RMB exchange rate regime will be able to b... |
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