Policy Options for China's Exchange Rate Regime in the Post-Reform Era

Given a growing recognition that China's de facto exchange rate regime often differs from its de jure regime, this paper intends to explore the de facto exchange rate regimes in the post-reform era after 1979 and explore the future policy options. According to the International Monetary Fund de facto classification system, the exchange rate regime has evolved from a pegged regime with a horizontal fluctuation band through a managed float linked to the U.S. dollar, a conventional peg to a managed float linked to a basket of currencies. The choice of a future exchange rate regime for China depends on macroeconomic, financial and institutional conditions in the country. This study finds that the most feasible option in the future is a free-floating exchange rate regime.