Renminbi (Chinese yuan) exchange rates 1969-2011 

In fact, the key principle underlying these policies is the desire for exchange rate stability. Understanding how and why China's exchange rates have moved in recent decades is important for a general understanding of China's economy and also helps those engaged in competitive trading in the forex trading market.

Before the 1980s, the exchange rate of the renminbi was artificially fixed at just under 2.5 to the dollar. This rate did not reflect purchasing power parities, but as foreign trade played such a small part in China's economy that didn't matter much.

As the economy was opened to international trade in the 1980s, downward pressure on the currency emerged. By 1985, the current account was in deficit, while inward FDI flows remained relatively small.

Small devaluations from 1984 onward were insufficient to prevent the development of a black market in which the exchange rate was much lower. Meanwhile, foreigners visiting China were issued with a separate currency, "foreign exchange certificates" (FECs), which enjoyed only a limited circulation. Organisations, including foreign-invested enterprises, using large amounts of foreign currency were allowed to conduct limited transactions in "swap centres", where the exchange rate was lower than the official fixed rate.

In 1994, the currency was effectively devalued when the official and swap rates were unified. Since then, the renminbi has appreciated, then stabilised, as the current account has moved into comfortable surplus and FDI inflows have settled at a high level. The authorities are moving gradually towards a less rigidly-controlled exchange rate, with fluctuations allowed within a wider band, but a full float is unlikely in the near future.

On 21 July 2005 the peg against the US dollar was replaced by a link to a basket of currencies, but the exchange rate was simultaneously set within a narrow band around Rmb8.11:US$1, representing a far smaller appreciation than had been called for by the United States and other trading partners.

The four main currencies in the basket are the US dollar, the euro, the Japanese yen and the Korean won.

In the following three years, however, a further gentle appreciation against the US currency has occurred. By end-October 2008, the renminbi had risen to nearly 6.8 to the US dollar, significantly stronger than the Hong Kong dollar (which is fixed at HKD7.8:USD1 and has consequently come under upward pressure). Since mid-2008, the renminbi has been held stable as the Chinese government considers how best to respond to the global economic crisis.

In June 2010, the temporary dollar peg was again abandoned, after the renminbi had risen some 16% against the euro following the onset of the Greek fiscal crisis. However, the Chinese government has signalled that its currency will only be allowed to appreciate gradually against the dollar.