International Law

WSJ: Misleading Headline on RMB Movement

I find this to be a most misleading headline:

China's Yuan Rises to Highest Level Against Dollar in Modern Era

The yuan was quoted at 6.8015 to the dollar in China's over-the-counter market Monday afternoon, up strongly from its opening level of 6.8261 and its close on Friday at 6.8262. The 6.8015 level was the yuan's strongest against the dollar since the 1980s, before the currency was allowed to be traded as part of China's market-oriented reforms.

WSJ is plain wrong. In 1993, before the FEC system was scrapped, the RMB and the FEC were pegged at 5.7:1. What was an FEC? It was an artificial sub-unit of currency, based on the value of the dollar, usable only by foreigners to transact business in China. Yes, a dual track system of currency. In the mid 1980s (I'm going by recollection here), the official exchange rate between the USD and a foreign exchange certificate (FEC) -- exchange into RMB was forbidden -- pegged the dollar at 3 FECs.

I remember my Japanese company colleagues changing $1.00 at this rate in order to get a receipt to submit to the expenses department. The unofficial rate -- on the black market -- was far more profitable: I remember negotiating on the streets of many cities for as many as 6 FECs to the dollar and treble that amount if I wanted RMB. It was technically unlawful to hold and spend RMB, as a foreigner, but nobody cared. High-level officials routinely asked me to exchange dollars for RMB with them.

It is true that, after the FEC system was scrapped, at times, one could get as many as 7.2 or 7.3 RMB for every dollar, but only on the black market. Compare the official 1994 rate of 5.7 to today's "highest in the modern era." WSJ should issue a correction.

As a parting comment (shot?), read this after and then re-read the WSJ headline:
The article also states:

The central bank's unchanged central parity rate Monday may have been aimed at tripping up speculators, signaling that a steadily appreciating yuan isn't a sure bet.

Highest in modern era? Unchanged central parity rate?

Full post as published by Asia Business Intelligence on June 21, 2010 (boomark / email).