China s new exchange rate regime, optimal basket currency and currency diversification

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dc.contributor Bank of Finland Zhang, Zhichao Shi, Nan Zhang, Xiaoli 2014-09-22T08:00:30Z 2014-09-22T08:00:30Z 2011
dc.identifier.isbn 978-952- 462-714-6
dc.identifier.issn 1456-5889
dc.description.abstract We build an optimising framework to analyse a class of economies that adopt an ECU-type basket currency while in transition to increased flexibility of the exchange rate regime. Instead of conventional basket pegging, such an economy uses an ECU-type currency index as a benchmark for monitoring and assessing exchange rate movements. This provides an anchoring device for the nation?s exchange rate regime and allows the home currency?s exchange rate to fluctuate. Under the assumption that the central bank is chiefly interested in maintaining stability, the optimal structure of the basket currency is based on its contribution to minimizing the volatility of the country?s external account. A currency invariance index is applied to capture the effect of the country?s exit from exclusive linkage with the US dollar. The approach is illustrated by Chinese exchange rate policy. We find it advisable and viable for China to form a basket currency with a diversified portfolio of currencies. While the portfolio?s weighting scheme could favour the dollar, euro and Japanese yen, we show that the composition of the basket is open to a wide range of possibilities. Moreover, contrary to general fears, there is considerable potential for China to engage in currency diversification, which will not necessarily affect the dollar?s position.
dc.format.extent 36 s.
dc.language.iso eng
dc.relation.ispartofseries BOFIT Discussion Papers
dc.subject valuuttakurssit
dc.subject valuuttapolitiikka
dc.subject Kiina
dc.subject valuuttakorit
dc.subject SP
dc.subject RP
dc.subject RP ST
dc.subject Bofit-kokoelma
dc.title China s new exchange rate regime, optimal basket currency and currency diversification
dc.type Sarjajulkaisu
dc.identifier.urn URN:NBN:fi:bof-201408071933 BOFIT Discussion Papers
dc.series.year 2011
dc.series.number 19/2011
dc.series.sortingnumber 19 4.8.2011
dc.contributor.orgunit Institute for Economies in Transition (BOFIT)

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