China's Monetary Challenges: Past Experiences and Future Prospects

China's Monetary Challenges: Past Experiences and Future Prospects

Richard C. K. Burdekin

Language: English

Pages: 272


Format: PDF / Kindle (mobi) / ePub

Despite the People's Republic of China's remarkable growth over the post-1978 reform period, questions have arisen about the sustainability of its exchange rate policy and the soundness of its financial system. This book focuses on the key monetary challenges to China's continued advancement and addresses such topical issues as the buildup of foreign exchange reserves, monetary control, credit allocation difficulties, and the expanding role of China's asset markets and stock exchanges. Current and past monetary policy strategies are examined in detail as are the banking sector reforms leading up to full foreign competition in December 2006. The analysis also assesses the People's Republic's role within Greater China (including Hong Kong and Taiwan) and the potential for future renminbi monetary hegemony within Asia. The treatment of these issues is intended to be accessible to non-economists and does not assume prior immersion in the underlying formal models.

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deflation episode but also set the stage for new inflation worries in the early twenty-first century. This chapter includes some material previously published in Burdekin (2000) and the author is most grateful to Jim Dorn, editor of the Cato Journal, for permission to reprint. The author thanks Xiaojin Hu, Yanjie Feng Burdekin, Tom Willett, Pierre Siklos, Mack Ott, Charles Hu, Bill Brown, and Marc Weidenmier for their helpful comments on the original piece and extends gratitude to Ida Whited,

previously a Visiting Scholar at the Federal Reserve Bank of Dallas and Assistant Professor at the University of Miami. Richard Burdekin first visited China in 1998. His main research interests include Chinese economic reforms, inflation and deflation, and central bank policymaking. Richard Burdekin has published in journals such as the American Economic Review, Economica, Economic Inquiry, the Journal of Financial Economics, the Journal of International Money and Finance, and the Journal of

consistent with actual experience. It is also interesting to see that sustained deviations from forecast values were generally avoided after 2000 in spite of the pressures arising from record rates of foreign reserve accumulation and the claimed undervaluation of the renminbi. Conclusions Increased sophistication of People’s Bank monetary policy since the 1990s appears to have been accompanied by smaller deviations from the forecast values generated by an extended McCallum-type rule estimated

Shanghai Stock Exchange index (see Table 5.3). The Chinese and Hong Kong Experiences Compared On October 15, 1934, the Chinese authorities attempted to limit the outflow of silver by levying an export duty and equalization charge on all new silver exports. The duty charged was 10%, less an allowance for minting charges paid in the case of silver dollars and mint-issued silver bars. Meanwhile, the equalization charge was set “equal to the deficiency, if any, existing between the theoretical

control of the foreign exchange system followed in 1956. China’s share in world trade stood at only 1.5% in 1953 and declined even further to just 0.6% in 1977 on the eve of the economic reforms launched under Deng Xiaoping (Wu, 2005, p. 292). After 1951, the exchange rate with the US dollar was adjusted in December 1952, January 1953, and January 1955 (Zhang, 2003, p. 55), but otherwise remained constant until a succession of appreciations against the dollar were employed during the 1970s (see

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