Study On The Optimal Weight Of RMB Exchange Rate Regime With Reference To A Basket Of Currencies

On July21st，2005， the People’s Bank of China announced that the Renminbi (RMB)would adopt a managed floating exchange rate regime， based on market supply and demandwith reference to a basket of currencies. Since the reform of exchange rate regime tookplace， nearly six years had elapsed. Which currencies are actually included in the RMBcurrency basket and what are their individual weights， as well as determinants of an optimalRMB currency basket and its specific structure， whether the RMB refers to a basket ofcurrencies nominally while in fact pegs to the U.S. Dollar (USD)， are among the hot topicsin academia. All these issues determine whether the RMB exchange rate is reasonable andscientific. After learned the research achievements of exchange rate regime of a basketcurrencies at home and abroad， the paper firstly introduce the definition of the exchange rateregime that reference to a basket of currencies and its mathematical expression， then westudy the theory that how the optimal weight of the currency basket determine.Secondly，we choose keeping the trade stability as the policy goal of the exchange rate regime on thebasis of nation economic condition， and analysis several forms of target function we canuse，then we deduce a model of optimal weight of the basket currencies. Thirdly， we chooseseveral currencies into the currency basket by the policy goal， and prove whether thesecurrencies are reasonable through econometrics techniques. Then， we estimate the optimalweight of these currencies at two different ways， then we compare the analog exchange rateof RMB with the nominal exchange rate of RMB， and analysis the same and differentbetween them. Base on the compared results， we discuss the defects and the impact thatthese defects bring in when reference to the weight of a basket of currencies. Lastly， we putforward policy suggestions that how to reference to the weight of a basket of currencies.