China's exchange rate system reform : two potential mistakes and the recommended long-term system

• Main Author: Yip, Paul Sau Leong
• Other Authors: School of Social Sciences
• Format: Article
• Language: English
• Published: 2021
• Subjects: Social sciences::Economic development; Exchange Rate System; Financial Crisis
• Online Access: https://hdl.handle.net/10356/146512
• Institution: Nanyang Technological University

Further to the author's recommended transitory and medium-term exchange rate system reforms that was implemented in China since July 2005, this paper explains that: (1) a long-term reform towards a floating exchange rate system with free capital mobility will cause huge damages to the Chinese economy. It then proposes a long-term exchange rate system that would probably benefit China the most; and (2) there is a serious mistake in China's latest exchange rate policy: The Chinese central bank has mistakenly allowed the renminbi exchange rate to rise with the strong rebound of the US dollar. This will cause not only a substantial drag in China's export and GDP growth, but will also eventually make China's financial and economic system vulnerable to a highly disruptive correction in the renminbi exchange rate.