Research Of The RMB Exchange Rate Formulation Mechanism

As a significant part of economic system, exchange rate formation mechanism plays an important role in economic and social development. Since the reform and opening-up policy in the last 37 years, China was in a rapid economic growth and economic aggregate ranked No.2 in the world since 2010, RMB exchange rate formation mechanism played a key role in economic achievements. China practised ‘double-track system’ in exchange rate during period between the reform and opening-up and 1993. And since 1994, China started to apply single currency and manageable floating exchange rate system and had survived the test of financial crisis in Asia. In July 21, 2005, central bank announced to abandon as single-pegged dollar regime, changed to practise a basket of currencies with manageable floating exchange rate system and started the marketization reform of RMB exchange rate; In 2010, central bank practised the second exchange rate reform and improved the exchange rate of degree of marketization; In Dec 1st, 2015, IMF’s CEO Christine Lagarde officially announced RMB as one of basket of currencies in SDR, which means RMB become an international reserve currency, this is also an affirmation for China’s exchange rate formation mechanism reforming achievement.In this article, firstly, I introduce several classifications of exchange rate mechanisms briefly and classical exchange rate mechanism theories and their development, describe several hypothesis of exchange rate mechanism and then get the conclusion of the choice of exchange rate mechanism. Also introduce exchange rate mechanism of other Emerging-markets like Brazil and India, analyze the pros and cons of different exchange rate mechanisms. Second, this article starts to state the benefits and risks of RMB exchange rate mechanism in different time since founding and lead to details of RMB exchange rate formation mechanism. Analyze the RMB equilibrium exchange rate by BEER model, get the conclusion of influence of RMB balanced exchange rate for different data and detail the problems of RMB exchange rate mechanism and necessity of reformation. In the last, it introduce the direction and measures of reformation of RMB exchange rate mechanism in the future.There are two innovations in this article: firstly, analyze the exchange rate of emerging nations, which has some reference meaning; secondly, analyze RMB exchange rate mechanism by econometric models, which is more persuasive than data analysis.