Source: St. Louis Federal Reserve Branch.
Yuan Exchange Rate (per USD), 1981-2016 (Monthly)
The exchange rate between the Yuan and the US dollar remains
one of the most controversial monetary and trade issue in the global
economy. China has actively used monetary policy as a tool to promote its
export-oriented growth strategy through the debasement of its currently,
the Yuan. In the 1990s the Yuan was systematically debased from roughly
3.7 Yuan per USD to 8.3 and left to that level for more than a decade.
These made Chinese goods cheap in American dollars and exports increased
significantly. The price paid for this export subsidy is substantial
inflation within the Chinese economy as it confers higher prices for
imported commodities such as food, minerals and energy.
In 2005 facing pressures from the American government as well as
rising commodities prices, such as petroleum, the Chinese government
started to gradually revaluate its currency and introduced a managed
floating exchange rate. By 2008 the exchange rate
stabilized around 6.8 Yuan per USD. Because of
intense competition on global markets and between Chinese
manufacturers, the profit margin for several export goods is very low
(less than 5%), implying that an additional reevaluation of the Yuan
has significant negative impacts on the competitiveness of the
Chinese export-oriented economy. By 2013, the exchange rate reached
6.0 Yuan per USD, but a reverse trend began as the Chinese
economy was losing competitiveness and as global demand slowed
down. It can thus be expected the Chinese
authorities would be highly reluctant to further revalue the Yuan to
levels seen before the 1990s.