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China’S Exchange Rate System Reform: Two Potential Mistakes And The Recommended Long-Term System

Author

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  • PAUL S. L. YIP

    (Economics Division, School of Humanities and Social Sciences, Nanyang Technological University, 14 Nanyang Drive, 637332, Singapore)

Abstract

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.

Suggested Citation

  • Paul S. L. Yip, 2016. "China’S Exchange Rate System Reform: Two Potential Mistakes And The Recommended Long-Term System," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-40, June.
    • Handle: RePEc:wsi:serxxx:v:61:y:2016:i:02:n:s0217590816400257
    DOI: 10.1142/S0217590816400257
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    References listed on IDEAS

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