Financial China

Rmb appreciation, or a new basket, or nothing much?

  • Published 25 Mar 2010

China's current peg to the US dollar will be overhauled at some stage, but will it be replaced by a genuine currency basket, or – with a trade deficit in March in prospect – will nothing much change?

On July 21 2005, China ended the renminbi's steady peg to the US dollar and announced that it would adopt a managed floating exchange rate system under which the Rmb would move with reference to a basket of currencies. On the next day, Rmb appreciated 2% against the US dollar. By July 2008, when China resumed the Rmb's peg to the US dollar, the Rmb had appreciated 21.2% against the US dollar in total. Thus, during those three years at least, the expression 'reference to a basket of currencies' simply meant appreciation against the US currency.

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