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Parallel exchange market as a transition mechanism for foreign exchange reform: China's experiment

Parallel exchange market as a transition mechanism for foreign exchange reform: China's experiment
Parallel exchange market as a transition mechanism for foreign exchange reform: China's experiment
In the process of China's foreign exchange reform, the so-called swap market was a key element. Despite the problems it caused, notably those associated with a dual exchange rate, the paper argues that the swap market proved to be a useful transition mechanism for China's foreign exchange liberalization. It is shown that the swap market caused exchange controls to wither and introduced market forces into incentive structure. Furthermore, statistical evidence has been found that the Chinese official exchange rate and the swap rate are cointegrated and there existed long-and short-run causal relationship in the sense of Granger in the direction from the swap to the official rate. It is evident from these findings that the swap market facilitated the reform of the mechanism of China's exchange rate by its services of information extraction and of introducing market forces into China's exchange rate decisions
0960-3107
123-135
Lu, Maozu
f20c88e0-3bba-419d-a6a8-79f68f821095
Zhang, Zhichao
7a646262-463c-4035-b69b-beb5586b3209
Lu, Maozu
f20c88e0-3bba-419d-a6a8-79f68f821095
Zhang, Zhichao
7a646262-463c-4035-b69b-beb5586b3209

Lu, Maozu and Zhang, Zhichao (2000) Parallel exchange market as a transition mechanism for foreign exchange reform: China's experiment. Applied Financial Economics, 10 (2), 123-135. (doi:10.1080/096031000331752).

Record type: Article

Abstract

In the process of China's foreign exchange reform, the so-called swap market was a key element. Despite the problems it caused, notably those associated with a dual exchange rate, the paper argues that the swap market proved to be a useful transition mechanism for China's foreign exchange liberalization. It is shown that the swap market caused exchange controls to wither and introduced market forces into incentive structure. Furthermore, statistical evidence has been found that the Chinese official exchange rate and the swap rate are cointegrated and there existed long-and short-run causal relationship in the sense of Granger in the direction from the swap to the official rate. It is evident from these findings that the swap market facilitated the reform of the mechanism of China's exchange rate by its services of information extraction and of introducing market forces into China's exchange rate decisions

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Published date: 2000

Identifiers

Local EPrints ID: 32993
URI: https://eprints.soton.ac.uk/id/eprint/32993
ISSN: 0960-3107
PURE UUID: 7654783c-37ca-4dde-b89a-6567f73b737c

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Date deposited: 18 Jul 2006
Last modified: 27 Feb 2019 17:31

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Contributors

Author: Maozu Lu
Author: Zhichao Zhang

University divisions

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