China Revaluation

Over the past 55 years since the creation of the People's Bank of China (PBC), the country's exchange rate regime has gradually evolved. Between 1949 and 1972, China established an official exchange rate and a single peg that was calculated based upon the relative price level of the currency, foreign currencies and the cost of exporting. The exchange rate remained relatively stable at this time especially since there were minimal exporting activities in China at the time. Imports dominated trade activity. Between 1973-1985, after the collapse of the Bretton Woods system, maintaining a single currency peg was becoming increasingly difficult, forcing the PBC to peg the Renminbi to a basket of currencies. The weights of the peg were based upon their trade activities with China and their relative values. This worked fairly well and in 1986, China decided to take measures to move towards a market economy and allow the market to determine their exchange rate (to some point) by moving towards a managed float as a part of financial reform. Although there were still strict controls, a swap center was created to allow Chinese and foreign investment corporations to engage in foreign exchange transactions. Parallel foreign-exchange certificates were circulated along with the domestically used Renminbi. In 1994, the 2 currencies were united at a rate of 8.7 per US