Theories of target zones and realignment of RMB (currency of China) exchange rate

Abstract

On the basis of introducing the theory of Target Zones and Exchange Rate, this paper tests for the significant to reform Chinese currency Renmingbi (RMB) exchange regime, and the possibility to build a target zone. It is pointed out that, under the tendency of economic globalization and entered WTO, it is necessary and urgent for China to realign and innovate its present exchange arrangement; target zones and its exchange rate mechanism is feasible for the reality of contemporary global economy and the situation of China. The authors analysis how to determine equilibrium of exchange rate and border of RMB target zones, and what kind of actions the Chinese government should do in such procedure.

Acknowledgements

The authors are grateful to the Financial Research Center of China, Southwestern University of Finance & Economics, for their funding of project. We are grateful to Peter Bearman and N.T. Wang, for their assistance on various aspects of the author's research at Columbia University in the City of New York.

Notes

 IMF, The World Economic Outlook 1997.

 CPI: Consumer Price Index.