China’s Evolving Exchange Rate Regime
IMF Working Papers, March 7, 2019
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- China’s Evolving Exchange Rate Regime
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Bibliographic details
- Authors: Sonali Das
- Published: March 7, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498302029.001
Summary
- China’s exchange rate regime has undergone gradual reform since the move away from a fixed exchange rate in 2005.
- The renminbi has become more flexible over time but is still carefully managed, and depth and liquidity in the onshore FX market is relatively low compared to other countries with de jure floating currencies.
- Allowing a greater role for market forces within the existing regime, and greater two-way flexibility of the exchange rate, are important steps to build on the progress already made.
- This should be complemented by further steps to develop the FX market, improve FX risk management, and modernize the monetary policy framework.
Key findings and analysis
- The renminbi (RMB) has become more flexible over time while remaining carefully managed.
- Onshore FX market depth and liquidity are relatively low compared to other countries with de jure floating currencies.
- Greater two-way flexibility of the exchange rate is identified as an important step to build on past progress.
- Market development, FX risk management improvements, and modernization of the monetary policy framework are highlighted as complementary priorities.
Policy recommendations and implications
- Allow a greater role for market forces within the existing exchange rate regime.
- Increase two-way flexibility of the exchange rate.
- Develop the FX market to deepen liquidity and depth in onshore FX trading venues.
- Improve FX risk management practices.
- Modernize the monetary policy framework to support a more flexible exchange rate regime.
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