What is the New Chinese Currency Regime?

Ajay Shah, Achim Zeileis, Ila Patnaik

Publication: Working/Discussion PaperWU Working Paper

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Abstract

The revaluation of the yuan in July 2005 was described by the Chinese central bank as a change in the currency regime, rather than merely a changed level of the exchange rate. The reform was said to involve a shift away from the fixed exchange rate, a gradual movement towards greater flexibility, and a peg to a basket of currencies. This paper closely examines the post-July Chinese currency regime utilising contemporary ideas in the econometrics of structural change. We find that the yuan has remained pegged to the US dollar, rather than to a basket, and has extremely limited currency flexibility. We find no evidence of structural change in the post-July period, which suggests that there has been no evolution towards greater flexibility. We show a monitoring procedure which will detect future evolution of the currency regime.

Publication series

SeriesResearch Report Series / Department of Statistics and Mathematics
Number23

WU Working Paper Series

  • Research Report Series / Department of Statistics and Mathematics

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