Exchange Rate Regime? »

Abstract: Using a new method of exchange rate regime assessment based on a macro-structural economic shock approach, this paper investigates whether China should maintain the dollar standard, or be better off adopting an alternative exchange rate regime, such as a floating exchange rate or a euro peg system. We conclude that China should rather abandon the dollar standard and would risk adopting a euro peg system for several pragmatic reasons. This possibility may explain the findings of Frankel (2009) that the renminbi basket had switched a substantial part of the dollar’s weight onto the euro