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Gaining CurrencyThe Rise of the Renminbi$
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Eswar S. Prasad

Print publication date: 2016

Print ISBN-13: 9780190631055

Published to Oxford Scholarship Online: October 2016

DOI: 10.1093/acprof:oso/9780190631055.001.0001

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The Exchange Rate Regime

The Exchange Rate Regime

(p.73) Chapter 4. The Exchange Rate Regime
Gaining Currency

Eswar S. Prasad

Oxford University Press

This chapter describes the evolution of China’s exchange rate policy. The RMB was pegged to the U.S. dollar from 1994 until 2005. Since then, the RMB has in principle been allowed to float in response to market forces but in practice still remains tightly managed relative to the dollar. This chapter documents the stages in which the RMB’s exchange rate has been made more flexible, although China’s central bank continues to this day to intervene in foreign exchange markets to prevent sharp movements in the currency’s value. The chapter shows how China’s exchange rate policy has become a matter of contention in U.S.-China relations. The chapter describes the PBC’s attempts to reform and increase the flexibility of the exchange rate, and how this has had certain unintended consequences.

Keywords:   dollar peg, managed floating exchange rate, foreign exchange reserves, current account surplus, trade surplus, central bank communication, People’s Bank of China (PBC, PBOC), trade-weighted basket, nominal and real effective exchange rates, offshore and onshore exchange rates (CNY, CNH)

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