Evolution of the RMB exchange Rate mechanism


The RMB exchange rate is a single, managed floating exchange rate based on market demand and supply which has been set up since RMB exchange rates were unified on 1 January 1994.

Before the 1994 reform, there were many foreign exchange swap centres across the country characterized by strong administration, regional segmentation, and fluctuating prices. In 1994, the China (Shanghai) Foreign Exchange Trading Centre was established linking 34 cities and neighbourhood regions through a computer network. A nationwide , unified inter-bank trading market was set up. The main trading bodies on the market include domestic-funded banks and their authorised branches, and authorized non-bank financial institutions. Following foreign- funded enterprises ' participation in the market, foreign-invested banks are also permitted to operate in the market, so that the interbank trading market is further stimulated.

At present, four foreign currencies are tradable with the RMB at the Centre: the US dollar, the Japanese yen, the Hong Kong dollar and the euro. The daily weighted average exchange rate is published by the People's Bank of China (PBC) as a benchmark rate for the ensuing business day. On this base, floating limits of 0.3 per cent for the US dollar and 1 per cent for the Japanese yen and the Hong Kong dollar are permitted when banks trade. The designated foreign exchange trading banks can decide their exchange rates within fluctuating limits. The actual trading rate can not exceed the intermediate rate by more than 0.5 per cent, which is calculated according to the real price in the international foreign exchange market. The trading banks can negotiate the price with their clients within a regulated range for transactions up to US$1 million and more.

The single RMB exchange rate and unified inter- bank system has created more favourable conditions for China to participate in international competition on fair and equal terms. PBC exercises macro-control over the RMB exchange rate and intervenes when necessary to ensure the soundness and stability of the rate.




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

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