Evaluating China's Exchange Rate Regime

In 1994 China established a de facto currency peg.1 The dollar-RMB exchange rate was fixed at 8.28.The People's Bank of China(PBC) allowed the rate a narrow band of around .01 to .02 percent in which it could shift daily.The exchange rate program did not become newsworthy until U.S.Treasury Secretary John Snow's visit in 2003.In fact as a study by Frankel and Wei (2007)showed, the RMB's forward was actually selling at a discount against the dollar prior to Secretary Snow's visit to China and his subsequent report, signaling that investors were anticipating RMB depreciation.