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Central bank specifies currency basket
www.chinaview.cn 2005-08-10 22:54:05

    BEIJING, Aug. 10 (Xinhuanet) -- Zhou Xiaochuan, governor of China's central bank, said for the first time on Wednesday that the US dollars, Euro, Japanese Yen and won of the Republic of Korea constitute the basket of the currencies that will act as a reference for the Renminbi exchange rate.

    Zhou made the remark when the central bank inaugurated its second headquarters in Shanghai, the country's financial hub.

    Last month, China abruptly allowed its currency, the yuan, to appreciate by a modest 2 percent, announcing the Renminbi will no longer be pegged to a single currency, the US dollar, following the rate reform.

    Instead, adjusted with reference to a basket of currencies, the mutual changes of major currencies in the world market will reduce the yuan's fluctuation.

    "The countries and regions and their currencies that take a comparatively major position in China's foreign economic activities concerning foreign trade, foreign debt and foreign direct investment will be taken into account when the center bank adjusts the exchange rate of the Chinese yuan," he said.

    "They will constitute the basket of the currencies and be weighted accordingly."

    "The United States, European Union, Japan and the Republic of Korea are China's most important trade partners, so their currencies naturally become the main currencies in the basket," he said.

    Singapore, Britain, Malaysia, Russia, Australia, Thailand and Canada also have important roles in China's foreign trade, so their currencies are important for the RMB exchange rate as well.

    The RMB exchange rate, adjusted with reference to a basket of currencies, better reflects the change of RMB value and China's foreign trade conditions in general, which will be of great importance for the basic balance of goods and service trade, he said.

    Zhou did not reveal the detailed contents of the currency baskets, including the shares of each currency in deciding the yuan's value.

    Some experts believe it is wise for the country not to publicize all the currencies in the basket as well as their shares, which will help the central bank better regulate and manage the exchange rate.

    Countries with a larger trade volume with China have a correspondingly larger share in the basket.

    The new RMB exchange rate regime, based on the reference to a basket of currencies will better cope with the negative impact brought by the unstable US dollar, and safeguard the stability of China's foreign trade environment, he said.

    The new RMB exchange rate regime will discourage the speculative activities betting on RMB's further appreciation, said Li Yang, director of the Financial Institute of the Chinese Academy of Social Sciences.

    The Chinese yuan had been pegged to the US dollar at a stable rate of about 8.27 to 1 for years before the sudden appreciation last month.

    With the devaluation of the US dollar in recent years, the RMB exchange rate against other major currencies was actually dropping, which some foreigners claimed was a measure by the Chinese government to stimulate its soaring exports.

    Chinese leaders have said on several occasions that it is a complicated job to reform the exchange rate regime, and should be done gradually. Enditem 

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