Improve The Rmb Exchange Rate Formation Mechanism

With acceleration of economic globalization, more and more countries try to use the foreign exchange measures to balance its internal and external economy, and the reform of RMB exchange rate formation mechanism in China is on the spotlight of the whole world. In 2002, few countries had proposed that it was China that output the deflation to the other countries. Since then many western politicians and experts have accused that RMB exchange rate undervaluation has been the root of international imbalance in the economy. And RMB exchange rate issue has always been on the agenda of international meetings. Under the complicated international situation, how do we look at the current RMB exchange rate formation mechanism? What effects does it exert on our macro-economy? How will we reform the RMB exchange rate regime to make it work for our national economy? In this paper, we will discuss these questions. Chapter I states the background, status quo and the importance of discussing RMB exchange rate issue. After financial crisis, RMB exchange rate issue was always raised by foreign countries, and we are faced with great pressure from the outside, on the other hand, RMB exchange rate regime does bring some difficulties to managing the macro-economy. At present, our Chinese experts have formed some mature opinions, that is, we should implement the reform of RMB exchange rate formation mechanism step by step to make it work smoothly.ChapterⅡlists the category of exchange rate regimes and the related theories on exchange rate regimes. First, the classification methods by International Monetary Fund and Levy Yeyati as well as Sturzenegger are described, second the author introduces the theories on exchange rate regime, including economic structure theory, Original Sin Theory, the fear of Floating Hypothesis Theory etc.ChapterⅢanalyzes the formation mechanism of RMB exchange rate.The author states the achievement on the reform of RMB exchange rate regime, describes the international background, analyzes the structure of basket currencies, and the management style of the People's Bank of China. The author believes that China should further reform its exchange rate formation mechanism.Chapter IV analyzes RMB exchange rate regime's negative effect on our national economy. Although the relatively stable RMB exchange rate regime has contributed a lot to rapid economic development and economic stability, its negative effects on our national economic is building up quickly----consolidating the export-oriented economic pattern, increasing the amount of foreign reserve and the risk of currency mismatch, influencing the independence of monetary policy.Based on the analysis of the four chapters, the author has proposed some effective measures to reform the RMB exchange rate formation mechanism, such as building the strong foreign exchange market, changing the ways of intervention on the market by the People's Bank of China, reforming our financial system, promoting the RMB internationalization, and strengthening the cooperation with the other countries.