【正文】 ndex (2020=100). Actually, wholesale price index is a more appropriate index for the estimation. Using the method in the above Table, we calculate China’s real exchange rate since 1965. See Figure 211 on the next page. N o m i n a l R a t e U S Pr i c e C h i n a ’ s Pr i c e R e a l R a t e 2020 8 . 2 7 8 4 100 100 8 . 2 7 8 4 2020 8 . 2 7 7 0 103 101 8 . 4 4 0 9 2020 8 . 2 7 7 0 105 99 8 . 7 7 8 6 2020 8 . 2 7 7 0 107 101 8 . 7 6 8 7 2020 8 . 2 7 6 8 1 1 0 104 8 . 7 5 4 3 14 Figure 211 RMB Real Exchange Rate Source: Author’s Estimation. 024681012141 96 5 1 97 0 1 97 5 1 98 0 1 98 5 1 99 0 1 99 5 2 00 0 2 00 5N O M I N A L R E A L15 ?Efficient exchange rate Efficient Exchange Rate is a weight average of a money basket made up of a country’s main trading partners’ currencies. The weight can be measured by the ratio of each trading partner’s export volumes plus import volumes to the total volumes of the country in question. 1,11?? ????niiniii wSwN E E R?The Exchange Rate 16 If we use bilateral real exchange rates to substitute the nominal ones in the equation, then we obtain Real Efficient Exchange Rate which is a measurement of a country’s overall petitiveness in the world markets. See Table 211 for an illustration of the estimation of RMB nominal efficient exchange rate, and Figure 212 for a survey of the trend of both RMB nominal and real efficient exchange rate puted by the BIS. 1,11?? ????niiniii wR E RwR E E R?The Exchange Rate 17 Figure 212 NEER and REER of RMB Source: BIS (2020=100) 607080901 0 01 1 01 2 01 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8R E E R N E E R18 ?Official rate vs. market rate Official Exchange Rate is the rate stipulated or released by a country’s moary authorities, such as central bank or foreign exchange administration institutions, while Market Exchange Rate is the rate determined pletely by the supplies and demands in the foreign exchange markets. ?Single rate vs. multiple rate Refer to Figure 213 and Figure 214 for a survey of China’s dual rates system. ?The Exchange Rate 19 Figure 213 Dual Rates of RMB Note: black market rate swap rate official rate unified 20 Figure 214 Dual Rates of RMB Internal settlement rate swap rate 21 ?Fixed exchange rate vs. floating exchange rate Fixed Rate is the rate set or released by a country’s government (usually a mint parity or gold parity is stipulated) and varying in a very narrow band, say ?1%. Floating rate is determined by the supplies and demands in the foreign exchange markets. If there is no government intervention in the market, the regime is then called Clean Floating Regime, and if there is government intervention, then it is labeled as Managed Floating or Dirty Floating. See Figure 215 to 217 for a survey of exchange rates movements under different international moary systems. ?The Exchange Rate 22 Figure 215 Exchange Rate Movements under Gold Standard ?A B C t Exchange rate Parity Gold Point Gold Point Band 23 t Exchange rate Parity Band Figure 216 Exchange Rate Movements under Bretton System +1% 1% 24 Figure 2171 Exchange Rate Movements under Jamaica System 642024665 70 75 80 85 90 95 00 05P E R C E N T U S $25 1 08642024665 70 75 80 85 90 95 00 05P E R C E N T U KFigure 2172 Exchange Rate Movements under Jamaica System 2nd pound crisis Single floating Pound crisis in Sep. 1992 26 Figure 2173 Exchange Rate Movements under Jamaica System 840481265 70 75 80 85 90 95 00 05P E R C E N T J A N YPlaza accord 27 ?Foreign Exchange Transactions I. Spot Exchange Market Delivered within 2 trading days Arbitrage on Currencies Arbitrage is the foreign exchange transactions in an attempt to obtain the spreads. ?Two points arbitrage Also labeled as Direct Arbitrage. 28 A simple illustration. . Suppose 163。1＝ US$2 in market A, but 163。vis major trading partners, differentials between the inflation target and expected inflation in major trading partners, and so forth. The rate of crawl can be set to generate inflationadjusted changes in the exchange rate (backward looking), or it can be set at a preannounced fixed rate and / or below the projected inflation differentials (forward looking). ?Exchange Rate Regimes 42 ?Exchange rates within crawling bands The currency is maintained within fluctuation margins of at least ?1 percent around a central rate, or the margin between the maximum and minimum values of the exchange rate exceeds 2 percent, and the central rate or margins are adjusted periodically at a fixed rate or in response to changes in selective quantitative indicators. The degree of exchange rate flexibility is a function of the width of the band. ?Exchange Rate Regimes 43 ?Managed floating The moary authority attempts to influence the exchange rate without having a predetermined path or target for it. Indicators for managing the rate include the balance of payments position, the level of international reserves, etc. ?Independently floating The exchange rate is determined by the markets. Official intervention in the foreign exchange market is infrequent and discretionary and is usually aimed at moderating the rate of change of, and preventing undue fluctuations in, the exchange rate, rather than at establishing a level for it. ?Exchange Rate Regimes 44 III. Polar Regime vs. Intermediate Regime Polar Regimes Also labeled as corner solution. ?F