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China abolishes yuan-dollar peg, adopts floating rate
By Xu Binglan (China Daily)
Updated: 2005-07-22 05:33
A more flexible exchange rate system will be important in improving the
country's macro-economic adjustment system and in giving the market more
influence in allocating resources, the central bank said.
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| This file photo shows a woman holding a sheaf of Chinese 100 yuan
notes. [AFP] |
| In the
short term, the move could have some negative effects on economic growth and
employment. But the bank believes the overall benefits will outweigh any
disadvantages.
The reform will alleviate the imbalance in China's foreign trade sector and
spur Chinese enterprises to sharpen their competitiveness in the global market,
it said. Chinese enterprises should readjust to the new situation after changes
in foreign exchange rates, it said.
The central bank said it is a relativley good time for reform of the renminbi
exchange rate mechanism as the Chinese economy has been growing rapidly.
The US dollar's exchange rate with the renminbi will be allowed to fluctuate
by 0.3 per cent in the foreign exchange market. Fluctuation of other foreign
currencies' rates towards the renminbi will also be limited within certain
ranges.
The central bank would adjust fluctuating ranges according to the development
of the foreign exchange market and the economic and financial situation, it
said.
The central bank said it wants the yuan's exchange rate to be "basically
stable on a reasonable equilibrium."
"Big swings in the renminbi's exchange rate will pose big impacts on the
country's economic and financial stability."
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