The Optimal Weights Of RMB Exchange Rate Formulated By A Basket Of Currencies

The meaning of a basket of currencies exchange rate system is that a country depending on its need of foreign trade and economic cooperation,selects kinds of currencies and sets corresponding weights,to constitute a currency basket which can determine the level of domestic exchange rate.So the study of RMB exchange rate system,that is referring to a basket of currencies,should cover three parts:the currency composition,policy objective and optimal weight.Basing on the factors discussed above,this paper is basically composed of following parts.Firstly,the paper analyses the development of foreign economy in China,to certify the realistic basis in choosing policy goal.Secondly,considering the relevant content by central-bank chief Zhou,this study select 13 kinds of currencies tested by related test,to determine the composition of the basket of RMB.Thirdly,taking the policy objective as constrained condition,this step is aimed at calculating the optimal weight in the basket of RMB.The final work is that compare RMB simulated exchange rate,which is composed by the optimal weight,with RMB nominal exchange rate.The primary fruits of this paper is the value of the optimal weight in the currency basket of RMB,which is under the condition of ensuring the balance of trade gap.In addition,by the work mentioned above,some conclusion can be drawn.Firstly,there are two standards of choosing currencies in the basket of RMB:the country which implement independent exchange rate policy and which has close trade contacts with China,and the balance of trade gap is the dominating goal of People's Bank of China.Secondly,USD weight will keep dominating role in the basket currencies of RMB,if Sino-American trade surplus remain unchanged,and the gap will be getting wider with increasing trade surplus.