nd the United States have repeatedly demanded that China appreciate the RMB. But if the government appreciates the RMB, the country's exports will be harmed. China's monetary policy and foreign exchange policy are caught in a dilemma.
             China has had a controlled floating exchange rate since 1994. From January 1 of 1994 to June 30 of this year, the value of RMB compared with the US dollar appreciated about 5 per cent. But the appreciation occurred mostly between January 1994 and May 1995. At that time, the band of movement for the exchange rate began to narrow. The band further narrowed to less than 0.05 per cent in 1998, when the government wanted to avoid financial risks after the Asian financial crisis broke out. The controlled floating exchange rate system looks more like a fixed exchange rate system.
             When countries suffering economic recession hope to shift domestic problems on to other countries, they usually target countries with a fixed exchange rate system or similar system, and demand that they appreciate their currencies.
             China's controlled exchange rate system has become such a target. In 1997, when the Asian financial crisis occurred, many countries chose to devalue their currencies. But China decided not to devalue the RMB. China's sacrifice contributed greatly to the stability of the world economy. The decision won high appraises not only from developing countries, but also from developed countries. With the aim of digesting and absorbing the losses brought about by the decision, the Chinese Government has carried out a pro-active fiscal policy and a sound monetary policy aimed at expanding domestic demand for more than 5 years. If the government decides to appreciate the yuan, it will once again give economic development a tremendous setback
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