China's exchange rate regime: a case for the analysis of the new exchange rate policies in Asian emerging economies

In this paper, we discuss new aspects of exchange rate policy which can be
observed in the emerging economies. In the first place, we concentrate on the
recent strategy of systematic undervaluation of one’s own currency –figuring
prominently among “big” players such as China– and the most likely implications
of such a strategy for domestic allocation, distribution and stabilization goals.
On the background of Germany’s experiences in 1969, almost on the eve of
the Bretton Woods’ system collapse, we secondly model a speculative attack
on an undervalued currency in the vein of the Flood-Garber seminal paper
from 1984. Now, however, the country in concern possesses strong rather
than weak fundamentals. We finally propose a sequence of reforms/policies
which should be implemented in China on its still long way to an autonomous
monetary and a flexible exchange rate with little if any capital controls. A brief
summary and an outlook for future research close the paper.
Friedrich SELL
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