This study mainly concentrates on the exchange rate problems between Taiwan and China, so cross-strait economic and the evolution of exchange rate regulation regime would be the first work so as to provide some policy suggestions about the cross-strait trading settlement .The empirical work has two parts. The first part is examining the Currency Substitution(CS) of Taiwan, then uses Cointergration and Vector Estimate Correction Model for the short and long run condition. Currency Substitution would cause the volatility of exchange rate, and the next procedure is using the Markov Regime Switch Model to analyze the exchange rate of two countries from 03 January,1994 to 30 April,2012. The main purpose of this study is examining whether the two markets have a significant regime switch or not, then the empirical result finds that both markets have regime switch .Considering the difference of exchange rate regime in two countries, the decision of the cross rate becomes more prudent because China authority may underestimate the exchange to disturb the export of Taiwan.