Monday, October 29, 2007

Should China Adopt a More Flexible Nominal Exchange Rate Regime?

Many people, economists included, have urged China to adopt a more flexible nominal exchange rate regime. (The emphasis is deliberate here)

Reasons for advocating such a nominal exchange rate regime are two-folded:

1) It would help facilitate adjustment in global current accounts;
2) It would enhance the effectiveness of China's monetary policy.

Latest research shows that both claims are way overblown. More here.

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