Comparison And Revelation On Exchange Rate System Reform Between India And China

The exchange rate system reform of China can be traced back to the unification of exchange rates in1994. Since then, China has experienced the change from the fixed exchange rate regime to a managed floating exchange rate system, and gradually adjusted from pegging to the US dollar to a basket of currencies with a wider floating range. RMB exchange rate has been showing an overall trend of appreciation and risen about30percents totally since2005.The research found that the Chinese exchange rate system reform has got a series of achievements through these two decades, such as riding out of the Asian financial crisis and the international financial crisis, the development of the foreign exchange market. But to it is still a long way to achieve the freely convertible and internationalization of RMB. With the China’s recent rapid economic development, the different voices of the "China threat theory" and "currency manipulation" are growing more and more intense, which gives RMB an enormous pressure to appreciate. Based on China’s basic situation, massive foreign exchange reserves, international trade surplus, excess liquidity and high unemployment rates have become problems to be solved urgently in the reform of the RMB exchange rate system. But the RMB’s appreciation or depreciation could not eliminate the problem.While the exchange rate system of India has been hailed as the Asia’s "most ideal" exchange rate system by IMF, India has high similarity with China in many aspects. They both are belonging to BRIC countries and in great development and transition. Compared the domestic and international economic background, the capital account openness, the cultivation of the foreign exchange market, the response to the appreciation pressure and the equilibrium exchange rate between India and China, we can conclude the similar factors and summarize the experiences of the exchange rate system reform in India. It can provide suggestions and comments for further improvement of China’s future exchange rate reform. Reference to the successful experience of the Indian exchange rate regime reform, we must ensure the choice of a country’s exchange rate regime should be based on both domestic and international economic background and their own national conditions. Also the exchange rate system reform is a gradual process. Both the convertibility of the current account and capital account and broaden of the fluctuation range are the ways from control to management. The RMB exchange rate reform should not only consider the appreciation or depreciation of RMB, but also the regulatory function of the exchange rate which should promote the development of coordination of internal and external economy. So the government should pay more attention to the improvement of exchange rate formation mechanism, the expansion of domestic demand and the coordination of the monetary policy and fiscal policy.The paper is divided into the following five parts:The first part is an introduction to clarify the research background of the topic, the significance of the topic, domestic and foreign research results, methods and innovation and shortcomings of this writing. The second part studies the domestic and international economic background of the exchange rate system reform in India. The third part is about the process of China’s exchange rate system reform. The forth part compares the similarity of the reform in India and China from many aspects, such as the domestic and international economic background, the openness of capital account, the cultivation of the foreign exchange market and the response to the appreciation pressure, and also points out the differences. Part V provides policy recommendations and suggestions for China from multi aspects. The sixth part is the conclusion of the article.