This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: 3 I. Introduction The Chinese exchange rate regime, a de facto dollar peg system, is coming under increas- ingly severe criticism from the international community including the U.S. and other G7 countries, who argue that the renminbi is significantly undervalued and the competitive advantage China gains from the undervaluation is hurting their industries. They also argue that the fixed exchange rate regime for the renminbi hampers the international adjustment process and at the same time, risks a loss of monetary control in China. To this, the Chinese authorities respond that the stability of the renminbi under the current exchange rate regime is good for the Chinese economy as well as for the global economy. Although they admit that they might change the dollar peg in the future, they argue strongly that strict sequencing will be necessary to avoid any disruptive impact on the economy: first, the financial system and state-owned enterprises would have to be The "Nixon Shock" and the "Plaza Agreement" : Lessons from Two Seemingly Failed Cases of Japan's Exchange Rate Policy Haruhiko Kuroda* * Haruhiko Kuroda, professor, Hitotsubashi University, Graduate School of Economics, Special Adviser to the Cabinet, Japan. This paper was presented at a seminar organized by the Institute of World Economics and Politics, Chinese Academy of Social Sciences in Oct. 2003. Abstract The Chinese exchange rate regime is under increasing pressure from the international community. Chinese authorities respond that the stability of the renminbi under the current exchange rate regime is good for the Chinese economy as well as for the global economy. In this context, two seemingly failed cases of Japan’s exchange rate policy, namely the “Nixon Shock” in 1971 and the “Plaza Agreement” in 1985, may provide some lessons for our consideration of the issue of China’s exchange rate policy. China & World Economy / 3-10, Vol. 12, No. 1, 2004 4 reformed; second, capital controls would have to be gradually relaxed; and, finally, the exchange rate regime may have to be made more flexible. In this context, two seemingly failed cases of Japan's exchange rate policy, namely the "Nixon Shock" in 1971 and its aftermath, and the "Plaza Agreement" in 1985 and its con- sequences may provide some lessons for our consideration of the issue of China's ex- change rate policy. Let me first describe the two cases in detail, then draw some lessons from them, and finally suggest a possible, medium-term solution for China. II. The "Nixon Shock" and Its Aftermath The famous "Nixon Shock" occurred on August 15, 1971, when U.S. president Richard Nixon unilaterally announced that the government would impose a 10 percent import sur- charge and discontinue gold convertibility in view of the deteriorating U.S. balance of payments. But, the seed of this decision had been sown well before that event....
View Full Document
This note was uploaded on 09/25/2010 for the course ECO IntEco taught by Professor Andre during the Spring '06 term at UFRGS.
- Spring '06
- International Economics