China Chart of the Week: China’s Real Effective FX Appreciation in Perspective


The renminbi depreciated by 2.5% against the US dollar in 2014, reversing a multi-year trend of appreciation. This depreciation has led some to question whether China has abandoned their policy of allowing the RMB to appreciate against the dollar. As we pointed out in our recent post reviewing the government’s foreign exchange and capital account reform in 2014, this weakness is in large part due to the strength of the dollar. In real trade-weighted terms, the RMB appreciated by over 6% in 2014. Taking a historical perspective, no country’s real effective foreign exchange rate has appreciated more than China’s since 2005 when the PBoC abandoned the hard fix to the dollar. Since July of 2005, the RMB has appreciated by over 50% against the exchange rates of its trading partners.

Real effective exchange rate appreciation/depreciation of various economies since July 2005*


Source: Bank for International Settlements

* We exclude Venezuela here, who has a 3-tier exchange rate system. According to official data however, their REER has appreciated by over 300% over this time period. We also exclude individual Eurozone countries.

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