ABSTRACT
In their early conversations with overseas guests,2 Chinese leaders have repeatedly promised that there will be no devaluation of the yuan.
In response to widespread concern over the stability of the renminbi, Dai Xianglong, the president of the central bank, and Xiang Huicheng, the finance minister, reiterated that the renminbi will be stable in 1999 and 2000 (Dai, 1999). Dai and Xiang Huicheng reiterated their belief in the stability of the RMB at the World Bank and IMF meetings in October 1999 (People’s Daily, Oct. 6, 1999). In his speech at the World Bank on October 4, Xiang indicated that depreciation of the RMB would trigger a new round of currency devaluation in Asia, hence he ruled out the RMB depreciation in the shortrun. The market, however, has remained suspicious. As observed, “fear of a yuan devaluation has continued to roil global financial markets, and has hung heavy on confidence domestically.”3 The black market exchange rate since late 1997 has been hovering at around 8.7 yuan for one U.S. dollar, representing a 6 percent devaluation.4 In some places such as Taishan, Guangdong province, the exchange rate once even hit a level of 11 yuan for one dollar. Standard and Poor has cut the yuan rating from stable to negative.5
