Effectiveness of China's Monetary Policy and Reform of Its Foreign Exchange System

This paper examines the effectiveness of China's monetary policy in curbing the overheating and speculation problems under the current foreign exchange system. The paper stresses the necessity of capital controls in China's gradual foreign exchange reform and the importance of credible government policy in guiding market expectations. Also, the paper discusses the persistence of China's external imbalance, and provides policy recommendations for its reduction. Copyright The official journal of The Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS) 2006.