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The Oxford Companion to the Economics of China$
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Shenggen Fan, Ravi Kanbur, Shang-Jin Wei, and Xiaobo Zhang

Print publication date: 2014

Print ISBN-13: 9780199678204

Published to Oxford Scholarship Online: December 2014

DOI: 10.1093/acprof:oso/9780199678204.001.0001

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Monetary policy in China

Monetary policy in China

(p.194) 29 Monetary policy in China
The Oxford Companion to the Economics of China

Eswar Prasad

Boyang Zhang

Oxford University Press

This chapter examines the state of monetary and exchange rate policies in China. China’s increasing openness to trade and financial flows and the economy’s gradual transition to a market-oriented policy has increased the importance of developing an effective monetary policy framework. Monetary policy plays a crucial role in macro-economic and financial stability, helps to promote the efficient allocation of resources, and serves as a buffer against internal and external shocks. Despite the evolution of China’s monetary policy framework over time, it remains constrained by a managed exchange rate regime, institutional weaknesses, and an underdeveloped financial system that reduces the potency of the monetary transmission mechanism.

Keywords:   Chinese economy, monetary policies, exchange rates, financial system, internal and external shocks

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