A Study Of Currency Mismatch In China And Its Influencing Factors

Accompany with economy globalization and international division of labor, currencymismatch is common problem in developing countries. As an emerging market economy, Chinaalso face currency mismatch. Serious currency mismatch will bring huge challenges to steadyeconomy. In this paper, based on existing research, I utilize the AECM index constructed byGoldenstein and Turner to measure the Chinese currency mismatch from1994to2010, and findthat the degree of currency mismatch is on a rise. Affected by the global financial environment,China’s currency mismatch peaked in2007and remained high since then. The risk of debt currencymismatch was the shrink of net foreign exchange asset.After measuring the currency mismatch, the article compares with the other four countries inBRICS to draw the features of currency mismatch in China. Using multiple linear regression andcointegration test, the article concludes influence degree of economy scale, foreign exchangereserves, financial deepening, financial maintain strength, openness and exchange rate forcurrency mismatch through empirical studies. Economy scale, financial deepening, openness andinflation have negative relationship with currency mismatches, while foreign exchange reserves,financial maintain strength and exchange rate have the opposite. There is a long-term stablerelationship among economy scale, foreign exchange reserves, exchange rate and currencymismatch, and they are also Granger reason of currency mismatch. Chinese huge foreignexchange reserves exacerbate the currency mismatch. When exchange rate fluctuates, foreignexchange reserves will suffer.Finally, the article puts forward pertinent control measures and suggestions to relieve currentcurrency mismatch which can be only solved by RMB internationalization to solve the problem.