The Nature of China’s Exchange Rate Regime and the Potential Impact on Its Financial System

  • René W. H. van der Linden
Part of the Palgrave Macmillan Studies in Banking and Financial Institutions book series (SBFI)


More than five years have passed since China moved into an exchange rate regime with reference to a basket of some major currencies on 21 July 2005. Since then, the controversies over the costs and benefits of China’s exchange rate policy have intensified. More recently, the rapidly rising US indebtedness and pursuit of its quantitative easing policy, the current Eurozone crisis and China’s role in the global macroeconomic imbalances have reignited the debate about alternative reserve currencies. Since China has emerged as the world’s second largest economy and the biggest exporter, its currency has been severely under-represented in global trade and capital markets. Therefore, in light of the current currency war with a ‘rising dragon and falling eagle’, it seems natural to talk about Renminbi (RMB)1 internationalization and its potential reserve currency role as a rival to the US dollar (USD) and other major currencies.


Exchange Rate Monetary Policy Central Bank Exchange Rate Regime Exchange Rate Flexibility 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Buitelaar, P. (2010) ‘Challenges for the economic policy of China, DNB’, Economische Statistische Berichten, 8 January, 26–8.Google Scholar
  2. Chance, G. (2010) China and the Credit Crisis: the emergence of a new world order (John Wiley & Sons: Singapore), pp. 100–1.Google Scholar
  3. China Daily (2010) Currency confusion, 26–7 June, p. 5.Google Scholar
  4. Deutsche Bank Research (2010) Country Infobase China, 19 July.Google Scholar
  5. Ding, Q and Xing, W. (2010) ‘Currency reform “our own affair” ‘, China Daily, 28 June, p. 2.Google Scholar
  6. Dobson, W. and Masson, P.R. (2008) ‘Will the Renminbi become a world currency?’, Rotman School of Management, University of Toronto, Institute for International Business Paper No. 10, March, pp. 12–13.Google Scholar
  7. The Economist (2010a) ‘China’s currency: wiggle it. Just a little bit’, 19 August (print edition).Google Scholar
  8. The Economist (2010b), ‘Bending, not bowing’, 8 April (print edition).Google Scholar
  9. Goldstein, M. and Lardy, N. (2008) ‘China’s exchange rate policy: an overview of some key issues’, in Goldstein, M. and Lardy, N. (eds), Debating China’s exchange rate policy (Washington, DC: Peterson Institute for International Economics), pp. 1–60.Google Scholar
  10. Jaeger, M. (2010) ‘Yuan as a reserve currency’, Deutsche Bank Research, 16 July, pp. 3–5.Google Scholar
  11. Li, D. and Liu, L. (2010) ‘RMB internationalization: Empirical and Policy Analysis’, in Peng, W. and Shu, C. (eds), Currency Internationalization: Global Experiences and Implications for the Renminbi (Palgrave Macmillan), pp. 167–85.Google Scholar
  12. Ma, G. and McCauley, R.N. (2007) ‘Do China’s capital controls still bind? Implications for monetary autonomy and capital liberalization’, BIS Working Papers No. 233, August, p. 18.Google Scholar
  13. Naughton, B. (2007) The Chinese Economy: Transitions and Growth (Cambridge, MA: MIT Press).Google Scholar
  14. Nettesheim, C. and Yin, L.Y., ‘Taming the Tiger, New Realities of Doing Business in China’s Year of the Tiger’, The Boston Consulting Group, March, p. 2.Google Scholar
  15. Prasad, E. (ed.) (2006) IMF Policy Discussion Paper: Modernizing China’s Growth Paradigm (pdp/06/3), pp. 2–14.Google Scholar
  16. Qu, H., Sun, J. and Kwok, D. ‘The rise of the redback, A guide to renminbi internationalization’, HSBC Global Research, November 2010, pp. 1–49.Google Scholar
  17. Tavlas, G.S. (1991) ‘On the International Use of Currencies: The Case of the Deutsche Mark’, Princeton Essays in International Finance, 181(March), 4.Google Scholar
  18. Yi, X. (2010) ‘Growth to retain momentum’, China Daily, 28 June, p. 9.Google Scholar
  19. Yueh, L. (2010) ‘A stronger China’, IMF Finance & Development, 47(2), 8–11.Google Scholar
  20. Zakaria, F. (2010) ‘The New Challenge from China’, Time, October 18, pp. 26–8.Google Scholar

Copyright information

© René W.H. van der Linden 2011

Authors and Affiliations

  • René W. H. van der Linden

There are no affiliations available

Personalised recommendations