If you have opportunity to exchange Renminbi (RMB) for foreign money at official rate, will you do it? Eleven months ago the reply would be mostly in the affirmative. But thereafter more and more people would choose to say no.
Statistics from the State Administration of Foreign Exchange showed that, in the first half of this year, Chinese banks conducted a total exchange settlement of 6.53 billion US dollars, 8.2 times higher over the same period of previous year. But the sales of exchange only registered at 560 million US dollars, a drop of 67.8 percent, the favorable balance was as high as 5.97 billion US dollars.
The situation is unprecedented, which shows Chinese people are getting more confident in their own currency--Renminbi, a researcher with the Administration said, adding that he believes this is the best demonstration that RMB is stable.
China realized full convertibility under current account as early as in December 1, 1996. But it is not totally free for it requires reasons for using foreign exchange, and a guiding limitation was set for individuals' non-trade exchange using such as traveling and studying abroad. According to rules, people to travel abroad can convert an amount of foreign currency equivalent to 2,000 US dollars in appointed banks, and those to study abroad an amount of 20,000 US dollars.
Since 2001 the US Federal Reserve has successively cut key rates for 11 times, followed by cuts of foreign currency deposit rate in Chinese land. The interest rate differential between RMB and foreign currencies leaped from below zero to above. Since then Chinese citizens no longer worshiped US dollars and turned to believe in their own currency.
In fact, since 1994 the RMB exchange rate has been kept stable and rising, with its standing on both domestic and overseas markets strengthened continuously. For many years assets hold in RMB yields better profits than that of the US dollars. It is calculated out that the weighted average annual deposit of RMB (after hedge subsidies) between 1994 and 2000 is around 9 percent, higher than that of the US dollars of the same period. Besides, during the period the exchange rate of RMB for US dollars grew 5.1 percent in value.
Now more people learned to exchange rationally. They work out their real needs and take the remaining foreign currency to banks for settlement. For they no longer think the surplus currency useful and when they need them they can exchange conveniently. A poll by the Administration showed that 90 percent people questioned believe the RMB is strengthening, and 62 percent said they would exchange foreign money at hand into RMB. While 40 percent said they settle the currency because the deposit rates for foreign currencies are lower than that of RMB.
What's more, RMB has been welcomed in neighboring countries and regions. Beginning from July 18, the Myanmar government allows Chinese tourists to pay in RMB. Each tourist could carry 6000 yuan into Myanmar without declaring to the Customs. Before this, Cambodia and Nepal also openly welcomed RMB circulation on their markets. In other Asian countries, such as Malaysia, Indonesia, Mongolia and Vietnam, RMB has become one of the most popular currencies after years of being stale, especially after the Asian crisis.
These open information further strengthened Chinese people's confidence in RMB, and now they are more willing to hold Renminbi--their own currency.
(People's Daily July 27, 2002)