China's exchange rate regime : 1994 to 2008.

Abstract

The value of the RMB, China's currency has become a contentious issue. China's RMB exchange rate regime has moved from a fixed exchange rate before July 2005, to a managed floating change rate regime. There has been external pressure on China to agree to the RMB's appreciation to the US dollar. There is a common view that the RMB is considerably undervalued at this moment, with some quarrelling that this is an issue of global concern. This study has two objectives. First, to review and critically comment on China's exchange rate regime over the period 1994 to 2008. Second, to review and critically comment on whether the RMB was undervalued over the period 1994 to 2008. This study shows that the evidence is mixed. The popular Big Mac Index shows that the RMB was significantly undervalued from 1994 to 2008. In contrast, this study reviewed research that provides evidence for alternative perspectives on the valuation of RMB.