On The Measurement And Determinants Of Aggregate Currency Mismatch In China

As an economic phenomenon, currency mismatch refers to a situation that an economic entity’s net assets or net income are sensitive to the changes of the exchange rate, when its assets/liabilities or revenues/expenditures are denominated in different currencies. Currency mismatch has been a serious threat to financial stability and sustainable economic growth in developing and emerging countries, as such, it has become important to understand how to measure currency mismatch, identify its causes, and decide how best to control it-the key issues examined in this paper.The subject investigated in this paper is currency mismatch stock of national-level, used both the theoretical analysis and the empirical analysis, both the qualitative analysis and the quantitative analysis, comparative analysis.This paper firstly adopts ACMAQ,AECM* and ACMRQ to measure the degree of Currency Mismatch in China from 1986 to 2012. This paper divide those dates to three stages and get a conclusion of Currency Mismatch’s developed trend, it’s from slowly growth to steady growth to rapid growth. At the same time it proposes that the type of Chinese Currency Mismatch is claims-based Currency Mismatch and mainly centralizes in the official institutions.Then it analyses the cause of china’s debt-based Currency Mismatch by applying congregation test, it concludes that China’s economic growth rate, degree of development of financial markets, the real effective exchange rate, foreign trade openness, FDI and the interest rate spread between China and U.S are the main causes of china’s debt-based Currency Mismatch.Finally, according to the analysis of the text before, it analyses how Currency Mismatch can influence China’s exchange rate, monetary policy, the cost of the loss and it raised the policy recommendations to manage currency mismatch, including perfecting the managed floating exchange rate system, using fiscal and monetary policy rationally, strengthening management of foreign exchange, vigorously developing the domestic financial market.