In early 1994，the renminbi's official exchange rate was merged with the exchange rate of the foreign exchange adjustment market，thereby establishing a single managed float system based on market supply and demand. China’s experience stands in contrast to a completely fixed exchange rate or a completely free-floating exchange rate. After reviewing the exchange rate reforms of the past two decades or so，it is clear that a market-based exchange rate is the general objective and exchange rate policy is always about selecting the appropriate approach at the appropriate time.

There has long been much controversy over what constitutes the best exchange rate system and what policies should be applied. The general consensus is that there are advantages and disadvantages to both fixed and floating rate systems. No system fits all countries -- or even certain countries -- all of the time. For the government，a managed floating exchange rate system means foregoing the benefits of the fixed exchange rate or the free-floating exchange rate. At the same time，the government has been criticized for the cost of maintaining an exchange rate under a managed float system.

Over the past two decades，China has set various policies under the framework of a managed float，and there has been no shortage of controversy. During the Asian financial crisis，when Asian currencies depreciated sharply and the renminbi faced strong downward pressure，the West unfairly accused China of setting the stage for the crisis with its first adjustment of the renminbi exchange rate in early 1994. In order to counter this argument while safeguarding domestic financial stability and shouldering some of the responsibility of a world economic power，China chose to prevent the renminbi from depreciating. It held the currency stable at around 8.28 to one US dollar. This avoided further competitive devaluations，making an important contribution to financial stability in Asia and the rest of the world. However，eventually an appreciation of the renminbi against the US dollar and other currencies increased difficulties for Chinese exporters，which aggravated the nation's domestic deflationary trend. Obviously，holding the renminbi steady was the correct policy choice but it came at a price.

After the August 11，2015 exchange rate reform，which effectively devalued the renminbi，China once again faced pressure from capital outflows. At that point，China opted for a managed floating exchange rate，allowing the renminbi to trade in accordance with market supply and demand but with a reference to a basket of currencies. To a certain extent，this eased pressure from an overvalued renminbi due to the past appreciation of the US dollar. It promoted a balanced and reasonable exchange rate for the renminbi，although it brought about certain challenges. As the US dollar continued to strengthen in the offshore market，the renminbi’s exchange rate against the dollar continued to fall on the domestic market. This led to market panic and an acceleration of capital outflows. By the end of 2016，the renminbi exchange rate had weakened beyond seven to the dollar and the nation’s foreign exchange reserves had slipped to only a shade more than US$3 trillion. That prompted heated policy debates over whether to maintain stability in the exchange rate or stabilize foreign reserves.