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Economic Research

Why China Should Abandon Its Dollar Peg

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This paper argues that China should allow its currency to significantly appreciate and move to a regime of more flexible exchange rates. It should thus phase out the effective peg with a snail pace of appreciating crawl that characterizes its current exchange rate regime.  

 The Chinese trade surplus and current account surplus are now growing at accelerating rates, thus leading to market pressures for the currency to appreciate. At the same time massive amounts of FDI and hot money inflows into China have also added to the appreciation pressures on the currency. Thus, the only way[...]

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