July 23rd was the first trading day after the second anniversary of RMB exchange rate reform. Many problems about RMB exchange rate reform should be reviewed at this moment.

Before 1994, China went through the fixed exchange rate system and dual exchange rate system. After transform of exchange rate in 1994, China had administrative fluctuating exchange rate system with market supply-and-demand as the base. Enterprises and individuals buy and sell the foreign exchange to the bank according to the regulations. Banks trade in the foreign exchange market among them to form the market exchange rate. The central bank establishes a certain fluctuating range of exchange rate and stabilizes the RMB exchange rate by adjusting the market.

Before 1997, the RMB exchange rate ascended with stable state. The confidence of both domestic and foreign market to RMB was strengthened continuously. Nevertheless, when the Asian financial crisis broke out, in order to prevent the currency of the countries and regions around Asia from devalueing as to deepen the crisis, as a responsible country, China narrowed the RMB fluctuating range voluntarily.

As the effect of Asian financial crisis being weakened, in recent years, Chinese economy kept stable and fast development. The reform of economic system was deepened continuously. The reform in financial domain obtained new achievements. The control of foreign exchanges was relaxed further. The depth and scope of construction of foreign exchange market has been expanded continuously. All of these provide favorable conditions to perfect RMB exchange rate forming system.

Since the beginning of this century, the out-of-balance problem of Chinese international revenue and expenditure has been aggravated. The foreign favorable trade balance is expanding constantly. The friction in trading increases. To promote the reform of RMB exchange rate become necessary to adjust economic structure, alleviate unbalanced foreign trade, expand inner demand, improve the competitiveness of enterprises in the international market and increase the degree of opening up.

At 19:00 of July 21st of 2005, the People's Bank of China released the announcement formally that approved by the State Council, China began to adjust administrative fluctuating exchange rate system regarding market supply-and-demand as the base and taking a basket of currencies into account. Meanwhile, the transaction value of US dollar to RMB was adjusted to 1 dollar for 8.11 RMB, which would be the middle price of trade between assigned banks in the foreign exchange market in the next day. The assigned banks of foreign exchanges can adjust the posted exchange rate to the customer from then on.

On September 23rd of 2005, the Central Bank determined to broaden the trade range of RMB exchange rate, expand the fluctuating rate of non-U.S. dollar currency to RMB in the spot foreign exchange market from original ±1.5% to ±3%, expand the difference in price of posted U.S. dollar exchange rate of bank to customers appropriately and eliminate the limitation on difference in price of non-US dollar currency posted by the bank to customers.

On January 4th of 2006, the Central Bank determined to introduce the inquiry trading mode in the spot foreign exchanges market among banks. Meanwhile, the market making system of foreign exchanges among banks was introduced in order to provide the market with fluidity. From then on, the forming mode of RMB exchange rate middle price was improved.

On May 18th of 2007, the People's Bank of China released the announcement that from May 21st of 2007, the fluctuating range of trade price of RMB to US dollar in the spot foreign exchanges market among banks will be expanded from 3‰ to 5‰.