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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official target values but also in keeping with the long-standing Friedmanite rationale for linking money growth to trend growth in output. A quarterly 3.75% growth rate, with a stochastic component around this growth rate, appears to best capture the underlying properties of the data (as detailed in Burdekin and Siklos, 2008). The resulting series, together with actual GDP, is plotted in Figure 2. The results of implementing equation (1) in the original form specified by McCallum are included in

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

(Chapter 4), and 1 Hsin-hui I. H. Whited is an Associate Professor at Colorado State University–Pueblo ( This chapter is adapted from an article (Burdekin and Whited, 2005) published in the China Economic Review, Copyright Elsevier, and is reprinted with kind permission of the publisher. The authors thank Tom Willett, Marc Weidenmier, Kerry Odell, Eric Helland, Greg Hess, and two anonymous referees for their helpful comments and are grateful to Munir Quddus for

29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 30, 2005 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 Sept. 29, 2006 dollar peaks at just over 5% in mid-2005 before falling back after the actual 2.1% appreciation imposed by the Chinese authorities on July 21, 2005 (Chapter 1). Furthermore, the spikes in revaluation pressure in

85 80 75 70 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Figure 1.1. US Dollar Trade Weighted Exchange Index: Major Currencies (Index March 1973 = 100). Sources: Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis. exchange rate was allowed to gradually strengthen to 8.28RMB/$US by 1998 but then remained fixed at this same 8.28 level for seven years. Although the exchange rate policy adopted in 1994 always allowed for daily

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