Chapter 5 The Implications of Renminbi Basket Management for Asian Currency Stability

The renminbi (RMB) has evolved in four phases since its mid-2005 unpegging from the US dollar. After a year's transition, the RMB's effective exchange rate traded for two years within narrow bands around an appreciating trend. That is, the RMB behaved as if it were managed to strengthen gradually against trading partners’ currencies. This experiment was interrupted in mid-2008 and the RMB stabilized against a strong dollar amidst the global financial crisis. If Chinese policy were to return to effective currency stability and other East Asian countries were to pursue similar policies, regional currency stability would be enhanced. That would create more favorable conditions for an evolution towards monetary cooperation.