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China’s Trade, the Dollar, and the Renminbi

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On July 21, China ended its 10-year policy of pegging the renminbi against the U.S. dollar and announced that it will use a basket of currencies to guide its exchange rate. On August 10, China’s Central Bank Governor Zhou Xiaochuan said that trade shares are the “fundamental considerations in the selection of the basket currencies and the weights assigned.” Referring to this criterion, he announced the 11 currencies in the basket, four of which—the dollar, euro, yen, and Korean won—are designated as “major currencies.” Other considerations for basket weighting and composition include the currency structure of China’s debt and sources of foreign direct investment.

Suggested citation: “China’s Trade, the Dollar, and the Renminbi,” Federal Reserve Bank of Cleveland, Economic Trends, no. 05-09, pp. 08-09, 09.01.2005.

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