What Is a Fixed Exchange Rate?

The fixed exchange rate refers to the exchange rate between the currency of that country and the currency of other countries stipulated by the government. The fluctuation of the exchange rate of the currencies of the two countries is limited to a certain extent. Under the gold standard system, the currency exchange between the two countries is based on the gold content of their respective currencies, and the parity of the coins is the standard for their exchange rates. At this time, fluctuations in exchange rates are bound by Goldpoints, which is a typical fixed exchange rate system. ^[1]

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The fixed exchange rate refers to the exchange rate between the currency of that country and the currency of other countries stipulated by the government. The fluctuation of the exchange rate of the currencies of the two countries is limited to a certain extent. Under the gold standard system, the currency exchange between the two countries is based on the gold content of their respective currencies, and the parity of the coins is the standard for their exchange rates. At this time, fluctuations in exchange rates are bound by Goldpoints, which is a typical fixed exchange rate system. ^[1]

fixed

in

A system for determining exchange rate levels based on certain relatively stable standards or standards. Under the fixed exchange rate system, the actual exchange rate level is restricted by parity, and can only fluctuate up and down within a small range around parity.

Fixed exchange rate RMB

Fixed exchange rate policy refers to the policy operation of monetary authorities either directly intervening in the foreign exchange market (through buying and selling foreign exchange) or indirectly affecting the foreign exchange market to maintain the market exchange rate within a predetermined narrow target range.

The RMB exchange rate was formulated and announced by the State Administration of Foreign Exchange before 1994. The RMB exchange rate on January 1, 1994

Fixed exchange rate

After the merger, a single, managed floating exchange rate system based on market supply and demand will be implemented. The People's Bank of China will announce the exchange rate of RMB to major currencies such as the US dollar based on the price formed by the interbank foreign exchange market the previous day. Based on this, the company will list itself within the floating range prescribed by the People's Bank of China.

The renminbi used a floating exchange rate system from 1949 to 1952.

From 1953 to 1973, under the planned economic system, the RMB was officially linked to the US dollar, and the exchange rate remained at the level of 1.46 yuan per dollar. However, in this era, foreign trade in mainland China was very small, so the exchange rate of the renminbi is not very significant.

In 1973, due to the oil crisis, world prices rose. Western countries generally implemented floating exchange rates, and exchange rates fluctuated frequently. In order to adapt to this change in the international exchange rate system and the adverse effects of changes in the exchange rates of major international currencies in reality, according to the principles that are conducive to the implementation of RMB-denominated settlement, facilitate trade, and are accepted by foreign trade, the RMB exchange rate is referenced to the currency exchange rates of western countries. The situation is adjusted using the basket of currencies weighted average calculation method. For this reason, the exchange rate of RMB against the US dollar was gradually adjusted from 2.46 yuan per dollar in 1973 to 1.50 yuan in 1980. The dollar depreciated by 39.2% against the renminbi. During the same period, the exchange rate of the pound sterling was changed from 5.9 yuan to 1.44 yuan, while the pound was renminbi Depreciation of 41.6%.

From 1980 to 1994, mainland China had a dual exchange rate system. From 1981 to 1984, a dual exchange rate system was initially implemented, that is, in addition to the official exchange rate, a separate foreign exchange settlement price applicable to the import and export trade settlement and the economic benefit accounting of foreign trade units was determined. This price was determined based on the current export exchange cost , Fixed at the level of 2.80 yuan. The official RMB exchange rate was adjusted downwards from 1.50 yuan in July 1981 to 2.30 yuan in July 1984 due to the influence of internal and external factors. The RMB depreciated by 53.3% against the US dollar. From 1985 to April 1991, the single exchange rate system was reverted. The exchange rate continues to adjust downwards.

Fixed exchange rate

It was lowered from 2.30 in July 1984 to 2.80 in January 1985 and has been lowered several times since. Although the single exchange rate system was restored at this stage, in the specific practice, with the increase of retained foreign exchange, the transaction volume of swap foreign exchange is getting larger and larger, and the price is getting higher and higher. Therefore, nominally a single exchange rate, in fact, A new double exchange rate has been formed.

From April 1991 to the end of 1993. At this stage, the RMB exchange rate was fine-tuned. In more than two years, the official exchange rate has been lowered dozens of times, but it still cannot keep up with changes in export exchange costs and foreign exchange adjustment prices. By the end of 1993, the official RMB exchange rate and the exchange rate for the US dollar were 5.7 and 8.7, respectively. It can be seen that the characteristics of the evolution and reform of the RMB exchange rate system during this period are: official exchange rates and adjustments

HKD vs USD

The market exchange rate coexisted, and the official exchange rate gradually adjusted downward.

Since 1994, the yuan has been informally linked to the US dollar, and the exchange rate can only float within a very narrow range of 8.27 to 8.28 yuan per dollar.

On July 21, 2005, the People's Bank of China suddenly announced that with the approval of the State Council, the RMB exchange rate was changed to refer to a basket of currencies, the exchange rate was changed from 1 US dollar to 8.11 yuan, the disguised appreciation was 2%, and it was no longer linked to the US dollar. The People's Bank of China announces the closing price of the exchange rate of the US dollar and other currencies against the RMB on the inter-bank spot foreign exchange market on that day after the market closes as the intermediate price of the currency against the RMB on the next working day. The daily exchange rate between the US dollar and the Renminbi in the inter-bank foreign exchange market still fluctuates within three to three thousandths of the mid-dollar exchange rate announced by the People's Bank of China. Floating within a certain range.

The RMB exchange rate basket mechanism is a comprehensive consideration of the major countries, regions and their currencies that account for a large proportion of foreign trade activities in China's foreign trade, foreign debt (interest payments), foreign direct investment (dividends) and other currencies, forming a currency basket and granting them Its corresponding weight in the basket. Specifically, the US dollar, euro, yen, and Korean won have naturally become the main basket currencies. In addition, as Singapore, the United Kingdom, Malaysia, Russia, Australia, Thailand, Canada and other countries also have a larger proportion of trade with China, their currencies are also important to the RMB exchange rate.

On September 23, 2005, the People's Bank of China issued a notice to expand the floating range of the exchange rate of non-US dollar currencies against the RMB in the inter-bank spot foreign exchange market, from 1.5% to 3%.

On December 29, 2005, SAFE approved 13 banks to carry out market maker services, including 4 state-owned commercial banks including Industrial, Agricultural, China, and Construction, 4 joint-stock banks from Bank of Communications, CITIC, China Merchants, and Industrial Bank, as well as Citi, Standard Chartered, A total of 13 banks including HSBC, ABN Amro and five foreign banks in Montreal have obtained the first batch of RMB market maker licenses. On January 4, 2006, 13 RMB market makers started to introduce inquiry trading methods in the interbank spot foreign exchange market, while retaining the matching method.

On January 3, 2006, the Announcement of the People's Bank of China on Further Improving the Spot Interbank Spot Foreign Exchange Market (Public Bank of China Announcement [2006] No. 1) stipulated that, starting on January 4, 2006, The foreign exchange market introduced the inquiry trading method (hereinafter referred to as the OTC method), while retaining the matching method; the China Foreign Exchange Trading Center announced the exchange rate of the RMB to the US dollar, the euro, the Japanese yen and the Hong Kong dollar at the same time at 9:15 every working day. Price, as the spot inter-bank spot foreign exchange market (including OTC method and matching

Fixed exchange rate

Method) and the middle price of the exchange rate at the bank counter. Before the opening of the daily inter-bank foreign exchange market, the China Foreign Exchange Trading Center consults all inter-bank foreign exchange market makers, and uses the quotes of all market makers as the calculation sample of the RMB / USD exchange rate. After removing the highest and lowest quotes, The weighted average of the remaining market makers' quotes is used to obtain the mid-day exchange rate of RMB against the US dollar. The weight is determined comprehensively by the China Foreign Exchange Trading Center based on indicators such as the transaction volume and quotation status of the bidder in the interbank foreign exchange market.

On May 18, 2007, the People's Bank of China issued an announcement saying that from the 21st, the floating range of the RMB-dollar trading price in the inter-bank spot foreign exchange market has increased from three-thousands to five-thousands.

The US Treasury has commented extensively on China's RMB exchange rate policy in its International Economic and Exchange Rate Policy Report. The report said that the yuan s fixed exchange rate policy against the US dollar obstructed changes in the price index, impeded the adjustment of the imbalance in the balance of payments, attracted a large amount of venture capital inflows, and posed an increasingly serious threat to the Chinese economy. China should immediately take Measures to significantly adjust the exchange rate of the RMB to the US dollar to "effectively change its undervalued market value."

Fixed exchange rate guilder

On December 18, 1946, the guilder's gold content was set at 0.334987 grams, and the official exchange rate was 1 US dollar equal to 2.65285 guilder. On September 21, 1949, the Dutch Guilder depreciated by 30.2%, the gold content was reduced to 0.233861 grams, and the official exchange rate was 1 US dollar to 3.80 Guilder. On November 1, 1960, the economic union treaties signed by the Netherlands, Belgium, and Luxembourg entered into force, and the fluctuations in the currency exchange rates of the three countries

Belarusian ruble

The degree is 1.5%.

On March 7, 1961, the guilder's gold content rose to 0.245489 grams, the official exchange rate was one dollar to 3.62 guilders, and the upper and lower limits of fluctuation were one dollar equal to 3.5925 to 3.6475 guilders. From May 10, 1971,

Along with the West German mark, the guilder broke the upper limit and floated, causing the depreciation of the guilder. On August 15, after the actual depreciation of the US dollar, the guilder, the Belgian franc, and the Luxembourg franc remained on May 10 from August 23. The previous exchange rate level (ie 1 Guilder equals 13.81215 Belgian francs) is pegged; controlled floating of other currencies, the Central Bank of the Netherlands and Belgium will control the floating limit to 1.5% above and below the exchange rate level on May 10; on September 6, The Netherlands imposed restrictions on non-residents' purchase of Dutch bonds, which led to the creation of a "0" guilder; the dollar depreciated on December 18; on December 21, the guilder s gold content increased by 2.76%, and the official exchange rate was adjusted to 1 dollar to 3.2447 The Dutch Guilder also established a real exchange rate with a fluctuation range of 4.5%, that is, the upper and lower limits of the fluctuation were 3.1719 to 3.3175.

Guilder

Guilder.

On April 24, 1972, the Netherlands announced that it would implement the regulation that currency exchange rates within the member states of the European Economic Community should not exceed 2.25%. The currency waves of the Belarusian, Dutch, and Lubanese currencies recovered to 7.1320 to 7.3490 guilders against 100 Belgian francs. On February 12, 1973, the US dollar depreciated. On February 14, the official exchange rate of the Dutch Guilder against the US dollar was 1.92 Rupiah, ranging from 2.8545 to 2.9860 Guilder. From March 19, the Guilder to the US Free floating, at the same time floating with the currencies of Belgium, Denmark, France, West Germany, Luxembourg, Norway, and Sweden. On September 15, the Guilder appreciated by 5%, and the official exchange rate was US $ 1 to US $ 2.781. On February 1, 1974, the "0" Dutch Guilder used by non-residents to purchase bonds was cancelled.

From March 15, 1976, the volatility replacement ratio of 2.25% in the EC member states and the 1.5% in the Dutch Monetary Union

EUR

On October 18, the guilder's gold content decreased by 1.96%, and the official exchange rate was adjusted to 2.837 guilder to one dollar. On October 16, 1978, the guilder depreciated by 2%, and the official exchange rate was 1 US dollar against 2.895 guilder.

On March 13, 1979, the European Monetary System was established, and the volatility between member currencies was 2.25%. At the same time, fixed exchange rates and intervention limits were periodically adjusted.

The guilder exchange rate is currently fixed at 2.20371 Guilders for 1 Euro, or 0.453780 Euros for 1 Guilder.