Analysis of the impact of RMB exchange-rate adjustments on China’s overall economy and national welfare

On June 19, 2010, the People’s Bank of China said repeatedly that it would be increasing the flexibility of the RMB exchange rate and thereby putting an end to the way in which the RMB had been restricted to a narrow band of trading against the US dollar since 2008. Nevertheless, in subsequent months, the band within which the RMB fluctuated did not in fact widen. If this trend had been allowed to continue, China would have faced a deteriorating international economic environment. From September 10, 2010, however, the pace at which the RMB appreciated began to pick up. By now, the rate has already gone up by 2.5 percent since exchange-rate reform was reinstituted. In general, though, there has been no notable improvement in the extent to which exchange-rate policies are conservative, nor has there been a decline in international pressure as a result.