china’s foreign exchange policies since 1979 a review of developments and an assessment

1、China’s foreign exchange policies since 1979: A review of developments and an assessment $LIN Guijuna,b,*, Ronald M. SCHRAMMa,c,1aUniversity of International Business and Economics, Beijing, China bDepartment of Economic

2、s, Columbia University, New York, NY, USA cGraduate School of Business, Columbia University, New York, NY, USAAbstractThis paper takes a closer look at the process of China’s foreign exchange reform since 1979. It descri

3、bes major policy changes, assesses their effects, and identifies challenges in furthering the process of capital account liberalization. The paper concludes that the core of China’ foreign exchange reform since 1979 has

4、been a gradual transformation of its exchange allocation mechanism from one that was governed by central planning to one in which market forces play a significant role. The entire reform process is characterized by subst

5、antial trade liberalization, initial official exchange rate adjustments, exchange market development, easing restrictions for current international transactions, and the establishment of a capital account control framewo

6、rk. China has moved to the last frontier of its exchange reform. Prior reforms had generally focused on the gradual liberalization of the current account and inward direct investment, aimed at strengthening the real sect

7、or and export capacity of the economy. D 2003 Elsevier Inc. All rights reserved.JEL classification: F31 Keywords: China: foreign exchange; Reform; Capital mobility1. IntroductionAfter 18 years of persistent efforts, Chin

8、a achieved current account convertibility for its currency in December 1996. As the authorities started to plan the next phase of exchange1043-951X/$ - see front matter D 2003 Elsevier Inc. All rights reserved. doi:10.10

9、16/j.chieco.2003.09.006$ Information contained herein is current through May 2003. * Corresponding author. School of International Trade and Economics, University of International Business and Economics, Beijing, China.

10、Tel.: +86-10-6449-3607; fax: +86-10-6449-3825. E-mail addresses: linguijun@uibe.edu.cn (G. Lin), rms11@columbia.edu, rms11s@netscape.net (R.M. Schramm). 1 Tel.: +86-10-6449-3216; fax: +86-10-6449-3860.China Economic Revi

11、ew 14 (2003) 246–280Delaying reforms could be costly as the economy is already incurring high administra- tive costs associated with maintaining and enforcing the existing exchange controls. The issue is whether China ca

12、n effectively coordinate capital account liberalization along with domestic financial reform and development of financial markets and instruments. An orderly transformation of the foreign exchange system is important to

13、ensure a smooth integration of the Chinese economy into global markets. Table 1 provides some key dates and developments in the reform process; Fig. 1 shows the path of China’s renminbi (RMB) against the U.S. dollar (US$

14、) exchange rate over the period under discussion. The purpose of this paper is twofold: First, it will describe the process of China’s foreign exchange reforms as they unfolded since 1979; second, the paper will examine

15、major policy changes and assess their impact on the economy. The paper is organized as follows: Section 2 briefly describes the prereform foreign trade and exchange regimes to serve as a starting point for the paper; Sec

16、tion 3 discusses the 1979 external reform and the adoption of the internal settlement rate (ISR) from 1981 to 1984; Section 4 focuses on the rapid development of the foreign exchange swap market after the mid-1980s until

17、 1993; Section 5 describes the market-oriented exchange reform in 1994 and additional measures taken to achieve RMB current account convertibility in late 1996; Section 6 describes the policy changes before and after the

18、 Asian financial crisis and points out the constraints of the financial sector for China’s capital account liberalization; and Section 7 provides a summary and some concluding remarks.Fig. 1. Source: International financ