The evolving renminbi regime and implications for Asian currency stability

BIS Working Papers No 321
September 2010

Published in Journal of the Japanese and International Economies, vol 15, no 1, pp 23-38, 2011.


The Chinese authorities described the management of the renminbi after its 2005 unpegging from the US dollar as involving a basket of trading partner currencies. Outside analysts have detected few signs of such management. We find that, in the two years from mid-2006 to mid-2008, the renminbi strengthened gradually against trading partners' currencies within a narrow band. In mid-2008, the financial crisis interrupted this experiment and the bilateral renminbi/dollar exchange rate stabilised at 6.8. The 2006-08 experience suggests that a shared policy of gradual nominal effective appreciation renders East Asian currencies quite stable against one another. Such a shared policy would create favourable conditions for regional monetary cooperation.

JEL classification: F31, F33

Keywords: exchange rate regime, renminbi, effective exchange rate, regional currency stability, regional monetary cooperation