Over the past two decades, China's robust economic performance has propelled it to the world stage. At the same time, the world has increasingly scrutinized China's economic policies and activities. One of the hotly contested issues is China's foreign exchange rate policy. China's current reform and modernization policies to convert its centrally planned economy towards a market-driven one could hardly draw on experiences of other countries.This book provides a succinct and up-to-date account of China's exchange rate policy including the currency undervaluation debate and the internationalization of its currency. It begins with a brief history of the modern China's foreign exchange rate policy. In particular, it highlights the three Chinese policy characteristics; namely, independence, controllability and practicability, and graduality. This prologue helps to interpret China's policy on its currency, the renminbi (RMB); including its recent initiatives to promote the international use of its currency.The book covers the basic theoretical and empirical issues that are relevant for determining the equilibrium value of the RMB exchange rate and, hence, its degree of misalignment. Then it evaluates the controversy surrounding the RMB valuation debate, and highlights the sensitivity of empirical estimates of the degree of misalignment to alternative presumptions.The book also examines the timely issues related to China's recent efforts in promoting the use of its currency in the global financial market. After describing the background of China's recent efforts to internationalize the RMB, the book a) discusses the main promotional policies, including the recent Qianhai project and Shanghai Free Trade Zone initiative, b) evaluates the current status of the offshore RMB market, the level of international use of the RMB and the admission to the SDR basket, and c) assesses the future prospects of the RMB to be a global currency.

"During the past few years, there has been heated debate - both domestically and internationally - about China’s exchange rate policy. At the heart of the debate are two fundamental issues: First, is the renminbi undervalued? If so, by how much; and second, toward what exchange rate regime should China move? This paper sheds light on the first issue by examining the "equilibrium" value of the renminbi and its alleged undervaluation, but focuses on the second issue - in particular, the risks to financial stability and the domestic costs of China’s current exchange rate regime. By reviewing a large number of Chinese and western literatures on a series of specific issues pertaining to China’s exchange rate policy such as: the revolution of the renminbi exchange rate regime since the start of the economic reforms 30 plus year ago; the "equilibrium" value of the renminbi and its alleged undervaluation; China’s fast growing current account surplus in recent years and its contribution factors; the risks to financial stability and other domestic costs of China’s current rigid exchange rate regime, this paper finds that the latest debates on the renminbi exchange rate regime in China mirror those in the west. In other words, there are same rival camps both inside and outside China. The synthesis of their findings is that greater exchange rate flexibility can resolve many of the challenges and obstacles posed by China’s current tightly managed exchange rate regime."--P. ii.

In less than three decades, China has grown from playing a negligible role in international trade to being one of the world's largest exporters, a substantial importer of raw materials, intermediate outputs, and other goods, and both a recipient and source of foreign investment. Not surprisingly, China's economic dynamism has generated considerable attention and concern in the United States and beyond. While some analysts have warned of the potential pitfalls of China's rise—the loss of jobs, for example—others have highlighted the benefits of new market and investment opportunities for US firms. Bringing together an expert group of contributors, China's Growing Role in World Trade undertakes an empirical investigation of the effects of China's new status. The essays collected here provide detailed analyses of the microstructure of trade, the macroeconomic implications, sector-level issues, and foreign direct investment. This volume's careful examination of micro data in light of established economic theories clarifies a number of misconceptions, disproves some conventional wisdom, and documents data patterns that enhance our understanding of China's trade and what it may mean to the rest of the world.