A look at China's new exchange rate regime

Spiegel, Mark M.

Journal Article

A look at China's new exchange rate regime

Abstract: In this Economic Letter, the author reviews several characteristics of the new renminbi regime. He also examines how the renminbi might have moved in the past if this regime had been in place. Because the PBOC provided only guidelines, and not specifics, about the composition and trade weights of the reference basket, he constructs three likely indexes and compares their movements with each other and with the bilateral renminbi-U.S. dollar exchange rate. He finds that movements in China's trade-weighted exchange rate indexes over the long term are relatively insensitive to currency composition; moreover, when viewed over the previous four to five years, all three indexes exhibit appreciation against the dollar far exceeding the initial 2.1% renminbi revaluation.

Keywords: Foreign exchange rates - China; International trade - China; Balance of trade - China;