chapter  11
24 Pages

The Exchange Rate of Chinese Yuan: Before and After WTO Entry

The prereform exchange system of China was characterized by strict control of foreign exchange transactions and rigidity of the exchange rate of the Chinese yuan. It neither responded flexibly to the change of price parities between China and the rest of the world, nor made prompt adjustment according to the changing supply and demand of foreign exchange. The official exchange rate was pegged to the U.S. dollar since 1986. In 1991, the exchange policy was altered to accept small-scale, more frequent adjustments in the official rate. One notable step in the foreign exchange rate reform was the unification of the swap rate and the official rate, which allowed the exchange rate to float freely in a limited band beginning in 1994. Since then the nominal exchange rate of the yuan has remained stable.