The Reform Of China's Exchange Rate Regime: From The Perspective Of Institutional Change

The exchange rate regime has been in complex change both worldwide and country-specific since it emerged in nineteen century. This paper analyzes the law of the change of the foreign exchange rate regime using the theory and methods of new institutional economics, and study the direction and path of the development of China's exchange rate regime in future.In the author's opinion, the nature of the exchange rate regime change is the process during which the regime changes from equilibrium to non-equilibrium, then to new equilibrium again. And whether the exchange regime change or not depends on the institution circumstance and the economic entities'endeavor to maximize their utility. As for China's exchange rate regime, this paper holds that the motivation of the change is the change of China's property rights institution and of the arrangement of Renminbi's convertibility, and in the expected future, Renminbi will be completely converted and the property rights institution in China will be more complete. Considering the different economic entities' utility objective, this paper concludes that only adopting floating exchange rate in China will be the equilibrium choice.Chapter 1 of this paper introduces the background and significance of the topic of this paper, and outlines the framework and main content, points out the innovation and shortcoming of this paper. At last, this chapter reviews the literature about the choice of the foreign exchange rate regime.Chapter 2 constructs the basic analyzing framework of the paper. In this part, I analyze the nature, motivation and mechanism of the change of the exchange rate regime, especially emphasize the basic role of the convertibility of currency and the arrangement of property rights in the evolution of the exchange rate regime.In chapter 3, I analyze the history of China's exchange rate regime using the framework constructed in chapter 2, and analyze the influence of the change about China's property rights arrangement and Renminbi's convertibility on the change of China's exchange rate regime. I also forecast the trend of the development of China's property rights arrangement and make preliminary equilibrium analysis on the present exchange rate regime in China.From chapter 4 to chapter 7, using the basic analyzing framework about the change of exchange rate regime, this paper evaluates the desirability of different kinds of exchange rate regime in future under the presumption that the development of China's property rights arrangement can be expected. From the perspective of speculation and currency crisis, chapter 4 demonstrates the undesirability of the intermediate exchange rate regime when Renminbi can be completely converted in China. At first I analyze the factors which can lead to financial instability under intermediate exchange rate regime if the currency can be completely converted, then I introduce the mechanism through which the currency crisis take place under intermediate exchange rate regime, and at last I investigate the potential currency crisis risk already existed in China under the intermediate exchange rate regime.Chapter 5 demonstrates the undesirability of the fixed exchange rate regime in China from the perspective of monetary policy independence. This chapter compares the independence and effectiveness of fixed exchange rate regime and the floating exchange rate regime under the presumption that the capital can flow freely. Then empirically analyzes the exchange rate regime's influence on the independence of China's monetary policy. The result shows that when the openness increases in China, the fixer is the exchange rate regime, the lower is the independence of China's monetary policy, so this paper concludes that the fix exchange rate regime is not desirable in China from the perspective of monetary policy independence.Chapter 6 compares the desirability of different exchange rate regime in China from the perspective of microeconomic welfare. In this part, I compare the microeconomic welfare performance of different exchange rate regime under traditional open economy macroeconomics framework and new open economy macroeconomics (NOEM) framework respectively, and illustrate the desirability of floating exchange rate regime in China from the perspective of the degree of openness and the pricing method.Chapter 7 compares the desirability of different exchange rate regime in China from the perspective of macroeconomic performance, which is the government's primary economic target. This chapter at first compares the macroeconomic performance under different exchange rate regime both in theory and in empirical performance, and then analyzes the exchange rate regime's influence on China's macroeconomic performance. The analysis shows that the influence of the flexibility of exchange rate regime on the China's growth and inflation is not significant statistically, so this paper concludes the desirability of different exchange rate regime is indifferent in China from the perspective of macroeconomic performance.According to the analysis from chapter 4 to chapter 7, this paper concludes that the floating exchange rate regime is more desirable than others in China if Renminbi can be completely converted and the property rights institution is more complete. In the last chapter this paper discusses the pattern and path by which China realize floating exchange rate regime. At first I analyze the obstacle China will encounter during shifting toward floating exchange rate regime, and compare the different paths different countries used to transit from fixed or intermediate exchange rate regime to floating regime and get some lesson and meaningful conclusion, at last I put forward some suggestion on how to realize floating exchange rate regime in China gradually.