The Resumption of RMB Exchange Rate Reform and the Internationalization of RMB, 2010–2013

Abstract

This chapter analyzes the resumption of China’s exchange rate reform after June 2010. The level I game and level II game are combined to explain the Chinese leadership’s decision to continue the exchange rate reform in 2010. It finds that, while the Congress’s influence on the RMB issue generally diminished over time after the global financial crisis, international criticism and pressure from the US administration and the IMF still played an important role of agenda-setting in China’s exchange rate policy making in 2010. The Chinese leadership stood firm to the external pressure and demonstrated solidarity and consistency towards the exchange rate policy. It argues that, with the development of RMB internationalization and increasing capital account openness, a flexible exchange rate was the feasible choice to preserve the independence and effectiveness of China’s monetary policy, which produced the Chinese leadership’s consensus on the RMB exchange rate reform in 2010. The RMB appreciated steadily and gradually against the dollar in the second round of exchange rate reform, aiming to improve confidence and promote the international use of RMB.