Pegging RMB to a basket of currencies

Comments on Heikki Oksanen "Should China peg the renminbi to a genuine basket?" 29 May 2015

Pegging the Ren Min Bi (RMB) with a basket of major currencies appears to be a sensible approach given China’s economic development and capital account regime.

While many economists may have very strong faith in the floating exchange regime, foreign exchange markets can and do exhibit excessive fluctuations showing bubbles similar to asset markets like stock and housing markets. Excessive fluctuations in foreign exchange markets may indicate some undesirability of complete floating.

Pegging to a basket of currencies increases stability and can reduce the degree of fluctuations.