Determinants and Fluctuations of China’s Exchange Rate Policy: National Interests and Decision-Making Processes

Abstract

Purpose

Propose a more comprehensive explanation on the determinants and fluctuations of China’s exchange rate policy in the past decade (2005–2015).

Approach

Case study on China’s exchange rate policies in three respective stages since 2005 and then a comparative study on these three stages.

Findings

Put forward a two-pronged explanation on the determinants and fluctuations of China’s exchange rate policy in the past decade and arrive at three specific conclusions. First, external pressure is only one factor among many influencing the formation of China’s national interests (Guojia Liyi in Chinese) and the decision-making process on exchange rate policy. Second, national interest is the fundamental driving force and substratum for making China’s exchange rate policy. Third, in the short term, the specific exchange rate policies in different periods were not always in accordance to the national interests (or Guojia Liyi), due to the influences of some factors on the decision-making environment.

Value

The comprehensive view is conducive to better explaining the formation and fluctuations of China’s exchange rate policy and consequently contributes to understanding and even predicting future policies.

Citation

Zhang, F. (2016), "Determinants and Fluctuations of China’s Exchange Rate Policy: National Interests and Decision-Making Processes", The Political Economy of Chinese Finance (International Finance Review, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 343-369. https://doi.org/10.1108/S1569-376720160000017018