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Management of the External Value of the Renminbi

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  • Heikki Oksanen

Abstract

Pegging the renminbi (RMB) to the US dollar since 1994 has characterised China’s exchange rate policy, under either a fixed peg or appreciating crawling peg. The current policy, announced in June 2010, of ‘floating with reference to a basket’ has now in April 2015 made the RMB 19 per cent stronger against a trade-weighted basket, while it is nine per cent stronger against the USD. Ten percentage points thus arise from changes in the cross rates of the other currencies. This effect could be eliminated by managing the external value of the RMB with reference to a genuine broad basket. This could be a suitable intermediary exchange rate regime for China as the risks of jumping to free floating are still great. Diversifying further the currency composition of the foreign exchange reserves and other foreign assets of the Chinese government, from USD towards EUR and JPY assets, would be a natural parallel shift. The current EUR-USD-JPY exchange rates may offer a good opportunity to carry out this move.

Suggested Citation

  • Heikki Oksanen, 2015. "Management of the External Value of the Renminbi," CESifo Working Paper Series 5325, CESifo.
    • Handle: RePEc:ces:ceswps:_5325
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5325.pdf
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    Cited by:

    1. Heikki Oksanen, 2015. "Managing the renminbi: should China peg to a trade-weighted basket?," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 29(2), pages 18-29, November.

    More about this item

    Keywords

    China; renminbi; yuan; basket peg; foreign exchange rates;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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