3RMBexchangerateandreform.pptVIP

Chinese Finance Research Institute * * Contents RMB Exchange Rate and Reform Assignments I. Evolutions of RMB Exchange Rate Regimes I.1 Phase 1 (1949-1952) The Government determined the RMB exchange rate on the basis of the relative price level of home currency, foreign currencies and the cost of exporting, with a major purpose to encourage exports, restrict imports, and serve the whole economy. I.2 Phase 2 (1953-1972) Highly planned economy and generally fixed exchange rate regime against major currencies, such as the pound and U.S. dollar. The RMB Exchange rate remained stable. RMB Exchange Rate and Reform I.3 Phase 3 (1973-1980) Faced increasingly difficulty in maintaining a single peg, the Government moved toward pegging a basket and determined RMB exchange rate according to the average rate of basket currencies. The RMB exchange rate climbed up from US$1=RMB2.46 in 1973 to US$1=RMB1.50 in 1980, with an appreciation of 39%. RMB Exchange Rate and Reform I.4 Phase 4 (1981-1984) Economic policies changed greatly following the implementation of economic reform initiated in 1978. With an attempt to encourage exports and facilitate the accounting among different trade sectors at the beginning of 1981, an internal settlement rate was introduced. All state-owned enterprises engaged in foreign trades were forced to execute their purchases of foreign exchange from the Bank of China at that rate. The official rate was used for non-trade-related transactions only. Thus, a dual exchange rate system was established at the end of 1981. RMB Exchange Rate and Reform I.5 Phase 5 (1985-1993) Since 1985, China put internal settlement rate to an end, and at the beginning of 1986, the PBC shifted RMB exchange rate policy from pegging to a basket to a managed floating. This was an important part of China’s financial reform, driven by its desire to move toward a market economy. With the development and deepening of the reform, the dual system of