INTERNATIONAL FINANCE

International finance

International finance

Introduction

The exchange rate regime of the People's Republic of China, set by the monetary authorities national, largely determines the exchange rate of the Chinese currency, the yuan. Since 2005, the yuan is pegged to a basket of currencies including the euro and the dollar part. The history started in 1955 where the China has a fixed exchange rate regime; the exchange rate was frozen for 17 years. It was then restructured in 1972 after the system of Bretton Woods and the general floating of major currencies, the Chinese decided to switch to a composite anchor (PEG composite), that is to say, in which the renminbi is tied to a basket of 13 Western currencies. In 1975, the basket of currencies is made ??more than 50% dollar and 50% mark which was certainly a benchmark that was achieved in the presence of economic pressures. The year 1979 was a year of extraordinary changes i.e. with the economic reforms, China introduced the IRTS (Internal Rate of trade regulations), and which does another rate exist in parallel to the official rate. Lower rate (listed on some) at the official rate played as devaluation. In 1984, frequent devaluations take place in order to eliminate the overvaluation inherited from the previous period. The official rate and joined the IRTS late 1984 which made ??it useless whereas in 1985, it was the official rate that was depreciated but often by small strokes (crawling peg). This experience only lasts a year and in 1986 China comes to an anchor with little but large devaluation. But the main limitation is the reform of enterprises to hold currency. They are obliged to exchange their currencies against the yuan.

The authorities then create liens currencies. Exporting enterprises that obtain these rights through their foreign exchange earnings can be used for imports or resale to other importing companies. It then establishes a market "currency swaps retentions" (nothing to do with current market SWAP) with an internal rate different from the official exchange rate. This lack of unification created tensions and inequalities in development between regions that ultimately lead to an overheating of the economy in 1993.The government will be forced to reform the exchange rate regime. In 1994, the great reform unifies multiple exchange rates, abolishes the retention system of currency, implements a new managed floating exchange rate regime with a narrow band associated with a new trading system (China Foreign Exchange Trade System). Band variation is reduced greatly after the Asian crisis and the yuan is actually strictly anchored to the dollar.

Finally in July 2005, the Chinese government passed the yuan peg to a basket of currencies consisting of dollars, to euros , the yen and won, with a slight revaluation of the yuan by 2.5%. It is always the authorities that define the official exchange rate, which always leaves a question mark on the composition of the basket of currencies. Upon entry into the WTO on 11 November 2001, the China has pegged its currency to ...