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 25, 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