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How Can RMB Overcome the Fear of Floating?

【Authors】
FAN Yanhui, XI Dan
【WorkUnit】
University of International Business and Economics, 100029.
【Abstract】

This paper examines the role of structural factors behind the flexibility of the Renminbi exchange rate and how the Renminbi can overcome the fear of floating. We find that structural factors such as ratio of domestic trade to international trade and export composition play an important role in influencing the flexibility of the Renminbi, which indicates that it is the dependence on foreign demand and traditional comparative advantage in our previous growth model that restricts the flexibility of the Renminbi. The fixed exchange rate actually acts as a stable anchor to make sure industries and economy grow smoothly. So a more flexible Renminbi in the future would be dependent on the smooth economic restructuring and transformation of growth engines.

JEL:F31, F41

【KeyWords】
Renminbi, Exchange Rate Flexibility, Fear of Floating, Stable Anchor