THIS note assumes that China is interested in moving from the current peg to the US dollar towards a more flexible type of exchange rate system. It first makes a suggestion on the transition process towards such an exchange rate system. It then puts forward a proposal that can strengthen China’s ability to stabilise her exchange rate. Some of the discussions are also applicable to Malaysia.
Some people have suggested an increase in the renminbi exchange rate band as a first step towards a more flexible exchange rate system. The problem of this suggestion is: if the renminbi is substantially under-valued, an increase in exchange rate band will only cause an immediate surge in renminbi to the upper end of the band, which will in turn invite more speculation pressure on renminbi.
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
