CURRENCY CONVERTIBILITY AND LINKAGE BETWEEN CHINESE OFFICIAL AND SWAP MARKET EXCHANGE RATES

This article investigates the impact of currency convertibility under the current account on the informational linkage between official and swap market exchange rates for Chinese currency (renminbi). Findings indicate that currency convertibility increased the informational connection between the government's official exchange rate and the swap market exchange rate, exclusively traded by foreign investors, and thus improved the information content of renminbi exchange rates. Moreover, the results also suggest that more complete currency convertibility was needed for more informed renminbi exchange rates. Copyright 2001 Western Economic Association International.