Analysis On The Issue Of The RMB Adopting The "BBC" (Basket, Band And Crawl) Rules

From the reform of exchange rate policy in 1994, RMB has solely pegged to US dollar for over ten years. We should admit that this policy helped to stabilize our country's export. However, with the development of economics, this pegging policy is becoming more and more unsuitable. According to Mundell's "Impossible Triangle", it is impossible for China to realize the following two targets at the same time: to stabilize RMB exchange rate and to keep monetary policy independent. In long run, China will eventually open capital item. Meanwhile, to keep monetary policy independent is also important. Thus, RMB must give up pegging policy in future.For today's China, it is impossible to adopt floating policy instantly because our monetary system is not mature enough to let RMB float. Thus, How to quit pegging policy becomes a hotspot.Many scholars propose that it is time for RMB to give up pegging policy and adopt the "BBC"(Basket, Band and Crawl) rules. The purpose of this paper is to analyze whether this proposal is suitable.My analysis depends on researching cases. I choose Poland as a case because of two reasons. First, Poland's "BBC" rules helped the country to quit pegging policy successfully. Second, through comparison, I find that China's economic situation today is very similar to Poland's when choosing to adopt the "BBC" rules. I mainly focus on effects after Poland adopting the "BBC" rules and conclude lessons from this case. Then, I choose Finland as a failure case. Finland also adopted "BBC" rules, but this policy hadn't helped the country to quit pegging and realize floating smoothly. Through analysis, I conclude that RMB can adopt the "BBC" rules to quit pegging policy if two things can be done.Then, I investigated the "BBC" rules' forming mechanism systematically and assumed that China adopted this policy in the past ten years and recalculated China's foreign exchange rates. Finally, I compared these calculated values with values under the system of solely pegging to US dollar.