The Evolution of the renminbi Exchange rate The exchange rate regime of the Chinese currency (or renminbi with unit the yuan) track rate regime and a market-based managed floating regir During the early stage of the foundation of the PRC, the exchange rate of the renminbi was adjusted frequently during the period from 1949 to 1952, followed by a relatively stable period from 1953 to 1970. After a drastic currency reform, which transferred 10,000 yuan of old currency to one new yuan, a fixed official rate against the U.S. dollar(USD)was established in January 1970(World Currency Yearbook, 1984). With the suspension of the convertibil ity of the USD into gold on 15 August 1971 (Gowa, J. 1983), the renminbi began to appreciate against the USD. Then the PrC began to list an effective rate for the renminbi against the USD from April 1972. After collapse of the Bretton Woods System the official renminbi rate remained pegged to a basket of 15 currencies until 1980 The most important progress in the exchange rate regime reform was made after the PRC launched its economic reform and opening up policy. In 1980, the renminbi was placed on a dual track system, i. e, the coexistence of the official rate and trade-related settlement rate and coexistence of the official rate and swap market rate, respectively, during 1981-1985 and 1985-1993. Following that, the Chinese currency was pegged to the USd and alle to float with a narrow band between 827 yuan and 862 yuan per hundred USD for than one decade The dual track exchange rate regime The evolution of the renminbi exchange rate regime and determination of the exchange rate are closely related to the economic regime of the prc as a whole. Before 1978, the PRC had a soviet Union style socialist system. Under this system, the relationship between the PRC and major capitalist countries was not so close. This is one of the reasons why its economy lagged behind western countries and why trade and capital flows with overseas were so scarce. To improve this situation, the Prc government had to ad vocate a spirit of self-independence and hard work. Since there were in practice no foreign exchange markets at the time, the exchange rate existed only as a calculation unit and seems unl ikely to have reflected supply and demand relations On 5 January 1980, The State Council issued a decree prohibiting the use of foreign exchange as a means of payment within the territory of the PRC. On 1 April 1980, foreign exchange certificates(also called Waihui Quan), which were equal in value to the renminbi at its effective rate, were issued in exchange for hard currency and put into circulation for use by nonresidents only, for pay ing hotel bills, transportation fares and for purchases the friendship stores(Youyi Shangd ian) On 1 January 1981, a multiple rate structure for the renminbi was created with the introduction of a trade-related internal settlement rate. For internal settlements under theThe Evolution of the Renminbi Exchange Rate The exchange rate regime of the Chinese currency (or renminbi with unit the yuan) has experienced three historical development phases, i.e. a single official rate regime, dual track rate regime and a market-based managed floating regime. During the early stage of the foundation of the PRC, the exchange rate of the renminbi was adjusted frequently during the period from 1949 to 1952, followed by a relatively stable period from 1953 to 1970. After a drastic currency reform, which transferred 10,000 yuan of old currency to one new yuan, a fixed official rate against the U.S. dollar (USD) was established in January 1970 (World Currency Yearbook, 1984). With the suspension of the convertibility of the USD into gold on 15 August 1971 (Gowa, J. 1983), the renminbi began to appreciate against the USD. Then the PRC began to list an effective rate for the renminbi against the USD from April 1972. After collapse of the Bretton Woods System, the official renminbi rate remained pegged to a basket of 15 currencies until 1980. The most important progress in the exchange rate regime reform was made after the PRC launched its economic reform and opening up policy. In 1980, the renminbi was placed on a dual track system, i.e., the coexistence of the official rate and trade-related settlement rate, and coexistence of the official rate and swap market rate, respectively, during 1981–1985 and 1985–1993. Following that, the Chinese currency was pegged to the USD and allowed to float with a narrow band between 827 yuan and 862 yuan per hundred USD for more than one decade. 1 The Dual Track Exchange Rate Regime The evolution of the renminbi exchange rate regime and determination of the exchange rate are closely related to the economic regime of the PRC as a whole. Before 1978, the PRC had a Soviet Union style socialist system. Under this system, the relationship between the PRC and major capitalist countries was not so close. This is one of the reasons why its economy lagged behind western countries and why trade and capital flows with overseas were so scarce. To improve this situation, the PRC government had to advocate a spirit of self-independence and hard work. Since there were in practice no foreign exchange markets at the time, the exchange rate existed only as a calculation unit and seems unlikely to have reflected supply and demand relations. On 5 January 1980, The State Council issued a decree prohibiting the use of foreign exchange as a means of payment within the territory of the PRC. On 1 April 1980, foreign exchange certificates (also called Waihui Quan), which were equal in value to the renminbi at its effective rate, were issued in exchange for hard currency and put into circulation for use by nonresidents only, for paying hotel bills, transportation fares and for purchases at the friendship stores (Youyi Shangdian). On 1 January 1981, a multiple rate structure for the renminbi was created with the introduction of a trade-related internal settlement rate. For internal settlements under the