The IMF labels China’s exchange rate regime as a crawl-like arrangement. The speed and direction of the crawling peg is decided by Chinese authorities according to domestic and international economic developments. The PBOC classifies its regime as a managed floating exchange rate regime based on market supply and demand with reference to an undisclosed basket of currencies. The U.S. dollar is likely to represent a large stake of the basket. The yuan fluctuates in an intraday trading band around an official midpoint rate. On 15 March, the PBOC widened the trading band from +/-1 to +/-2.
From 1995 to 2005, China kept its currency fixed versus the U.S. dollar at around 8.28 CNY per USD. This was the case until 2005, when it switched to a managed float of the currency to facilitate a controlled appreciation of the CNY. However, in the wake of the global financial crisis, China pegged its currency to the USD at 6.82 CNY per USD from June 2008 to June 2010. In 2010, the PBOC allowed the yuan to trade more flexibly.
While the Chinese yuan is freely convertible under the current account, it remains strictly regulated in the capital account. Chinese authorities expressed their willingness to allow the yuan to be fully convertible in the near future.
Chinese authorities are gradually enhancing the use of the currency in other parts of the world in order to promote the yuan as a global reserve currency. Although the process is far from being completed, China has already established trade settlements with selected countries and launched a series of currency swap agreements with more than 20 central banks. In addition, China is rapidly expanding the yuan’s offshore market. The opening up of the country’s capital market will be a crucial step in the yuan’s journey to becoming a major reserve currency.
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