TITLE:
A Note on the Defensive Orientation of the Renminbi Exchange Rate Policy
AUTHORS:
Wang Jinbin, Li Nan
KEYWORDS:
Exchange Rate War, Asymmetric Loss Preference, Defensive Orientation, Nominal and Effective Exchange Rate
JOURNAL NAME:
Chinese Studies,
Vol.3 No.2,
May
12,
2014
ABSTRACT: History shows that the United States has constantly been the winner in wars of exchange rate since U.S. dollar became the leading international currency. Likewise, the ongoing exchange rate war is bound to increase the costs of maintaining the existing paradigm of international division of labor (IDL henceforth) for emerging economies. In view of the rigid paradigm of IDL and dollar-dominated international monetary system, the defensive tactics of the Renminbi exchange rate policy is in conformity with the modes of China’s economic growth and gradual reform, as well as in correspondence with the asymmetric international financial system and trading system. Therefore, using the defensive tactics to reduce the costs of maintaining the existing paradigm of IDL will continue to be the basic policy for RMB exchange rate management in the next few years.