How Can China Deal with Pressure to Devalue the Renminbi?

Zhang MingPhD, Director in the international investment research office of the Institute of World Economy and Politics, Chinese Academy of Social Sciences (CASS), Beijing

A version of this article was originally published in the Business Standard as How China can resist devaluation pressure’, 29 July 2017. This is part of a series by Chinese economists facilitated by the ICS.

In July 2005, People’s Bank of China announced it was implementing a managed floating exchange rate system based on market principles and with reference to a basket of currencies.

From the end of June 2005 to the end of July 2015, RMB exchange rate against the US dollar rose to 6.12 from the previous 8.28, appreciating by about 26% (Figure 1). The RMB nominal effective exchange rate (NEER) and real effective exchange rate (REER) indices appreciated by 48% and 57% respectively over the same period (Figure 2).

That the appreciation of the REER of RMB exceeded its NEER indicates that the inflation level in China during this period was higher than the global average. Continue reading “How Can China Deal with Pressure to Devalue the Renminbi?”