Chinese money is called Renminbi (RMB) means "The People's Currency".

The popular unit of RMB is yuan 1 yuan equals 10 jiao, 1 jiao equals 10 fen. There are parts of China where the yuan is also known as Kuai and Jiao is known as mao. Chinese currency is issued in the following denominations: one, two, five, ten, twenty, fifty and one hundred yuan; one, two and five jiao; and one, two and five fen. The official exchange rate between U.S. dollar and Renminbi yuan currently is about 1:6.8(1 US dollar = 5.66 yuan RMB)

Devaluation decreasing the value of one nation's currency relative to gold or the currencies of other nations.

Meaning

Revaluation increasing the value of one nation's currency relative to gold or the currencies of other nations.

Meaning

CHINA DEVALUES ITS CURRENCY

Dec 1948 People Republic of China Introduced RMB

1955 1$=2.46 YAUN

1972 79 1.50 YAUN

1981 YAUN Devalued 2.80

1986 Devalued 3.45 YAUN

27 Dec 1985 China Join IMF

1985 Entered into SWAP market (Dual pricing)

1983 PROC Commercial BK Central Bk

1993 Devalued 5.76 YAUN

1994(8.62) Forex Exchange trading Center End of Dual Pricing

1997 2005 Pegged $8.27 YAUN Join WTO

2005 End of PEG Revalued 2.1% 8.11 YAUN

9 6 2010 5.66 YAUN

2006 Pressue fm US , incresase Tariff if not Revalued

Buy Huge amount of $

Supply of YAUN

Increase in Demand of Dollar (D>S)

Increase in Supply of RMB (S>D)

Increase in Dollar Price

Price of YAUN goes Down

China Buys Dollar > Trade Surplus.

Even China has argued that their economy is not doing well because of the continuous loss made.
China Sell Bond to Local Investor (4 %)

Because of this Loss China sustain devaluation of Yaun

China Feels that this loss is a small amount, for creating Jobs and giving boost to Exports. U.S. has not been able to pressurize China to a great extent , because of help by china for Budget Deficit.

In Process China make loss of 2 %

Bond money used for Purchase of U.S Treasury Bond (2 %)

by encouraging banks to make loans to export oriented companies.

Ministry of Foreign Trade and Economic Cooperation issues more export licenses for base metals.

Exporters will receive full 17% subsidiaries. In China, Loans taken by Financially week companies gets written off by the banks

China pegged its currency at 8.23 yuan for 10 years

US pressure on China

2005, End of peg , Revalued 2.1%, yuan 8.11 to dollar

Reverse impact on china currency

Dollar Price Decrease, due to mkt cricis

2006 , Pressure from US , Increase Tarriff if not Revalued

Chinas Export to US Chinas Import from US

0.2124 trillion 0.07272 trillion $2.40trillion

US Trade Deficit = 0.13968 trillion

Reserves

Revalue Decrease in Deficit Company Interest Rate Economic Growth

Devalue People

Not prepared well:



global economic imbalances and uncertainties; large amount of cross border capital flows Economy will get affected

10

12

0 1979.01 1980.01 1981.01 1982.01 1983.01 1984.01 1985.01 1986.01 Int.transaction rate Official rate Swap market rate Unified inter-bank rate 1987.01 1988.01 1989.01 1990.01 1991.01 1992.01 1993.01 1994.01 1995.01 1996.01 1997.01 1998.01 1999.01 2000.01 2001.01 2002.01 2003.01 2004.01

4
1979

,FX retention system

Dual rate
1994

unified with the exchange rate

1980s, a fixed exchange rate system plus frequent RMB devaluation 1988 1993, a dual exchange rate system: official fixed exchange rate coexisted with the market determined rate in the swap centers The swap market rate depreciated sharply in the early 1990s 1994, the official rate was devalued and unified with the exchange rate at the swap centers; 1995, a de jure managed floating exchange rate system although the currency has been de facto fixed to $ 2004(21 July): Managed floating

Currency pegs are not terribly successful during tough times  You cant maintain a depreciating currency forever and markets know this!  A peg forces you to follow policies that tend to make economic conditions worse (tight money, balanced government budgets)

Introduction to chinese currency (RMB or YUAN) Definition of Devaluation and Revaluation Timeline Explains various stages of RMB right from 1948 till 2010 How China devalued RMB
Bought dollars to increase value of dollar price Increased Supply of YUAN to decrease value of YUAN

How China sustained devalued YUAN China s strategy to increase RMB Relax Export licenses Revaluation of RMB Increased RMB value by 2.1% US Pressurizes China Why not immediate float of RMB. Evolution of Foreign Exchange Rate System Short Run Management

Ease Export credits

Increased Subsidies