Adjusting China's Exchange Rate Policies

54 Pages Posted: 25 Aug 2004

See all articles by Morris Goldstein

Morris Goldstein

Peter G. Peterson Institute for International Economics

Date Written: June 2004


In this paper the author argues that China's exchange rate policy is seriously flawed given its current macroeconomic circumstances and its longer-term policy objectives. The main conclusions are the following: (i) the RMB is significantly under-valued; (ii) China has been "manipulating" its currency, contrary to the IMF rules of the game; (iii) it is in China's own interest, as well as in the interest of the international community, for China to initiate an appreciation of the RMB soon; and (iv) China should neither stand pat with its existing currency regime nor opt for a freely floating RMB and completely open capital markets. Instead, China should undertake a "two step" currency reform. Step one would involve a switch from a unitary peg to the US dollar to a basket peg, a 15-25 percent appreciation of the RMB, and wider margins around the new peg. Existing controls on China's capital outflows would be either maintained or liberalized only marginally, at least in the short run. Step two, to be implemented later when China's banking system is considerably stronger than it is today, would involve a transition to a "managed float," along with a significant liberalization of China's capital outflows.

Keywords: RMB, China, Exchange rate policies

JEL Classification: F31, F32, F41

Suggested Citation

Goldstein, Morris, Adjusting China's Exchange Rate Policies (June 2004). Available at SSRN: or

Morris Goldstein (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036-1903
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics