Title:
An Innovative Approach for Dam-based Currency Exchange Rate Reform

Authors:
LIE Chun Pong, China

Abstract:

Recent discourse on the Renminbi (RMB) exchange rate regime has largely centered on the magnitude and desirability of RMB appreciation. However, a growing body of scholarship has begun to shift attention toward more fundamental questions concerning the underlying currency regime. In this context, this research paper advocates for a reform-oriented approach with the structural composition of reserve “Dam” assets, emphasizing adjustments to the reserve structure as a critical component of exchange rate policy. The stability of the RMB exchange rate is underpinned by several key macroeconomic factors, including substantial foreign exchange reserves, persistent current account surpluses, sustained economic growth, and prevailing market expectations. To critically assess the structural challenges of China’s currency system, it is essential to first deconstruct its foundational elements. Specifically, this study examines: (1) the determinants of the spot exchange rate, (2) the composition and allocation of China’s foreign exchange reserves, and (3) the operational dynamics of the contemporary international monetary system. A central analytical question concerns the nature and composition of foreign exchange reserves what they represent in both accounting and functional terms, and how their structure influences exchange rate stability and policy autonomy. This research paper provides a detailed discussion of these issues. Furthermore, this study advances a policy proposal grounded in the concept of a “Dam-Based Currency Exchange Reserve” framework, aligning it with a broader reform of the exchange rate mechanism. This innovative approach seeks to enhance systemic resilience, improve reserve allocation efficiency, and contribute to a more stable and sustainable currency regime.

DOI: https://doi.org/10.51505/IJEBMR.2026.10320