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Central bank wants a stable currency
By Zhao Renfeng (China Daily)
Updated: 2005-08-05 06:01
China said yesterday that it would continue to keep the value of the
renminbi, the local currency, at a reasonable and balanced level and would
adjust the currency's trading band only when economic and financial conditions
permit.
In its monetary policy report for the second quarter, the nation's central
bank stressed that the core of its renminbi reform concerns the exchange rate
adjustment mechanism, not the level of exchange rate value, and that the reform
has to be active, controllable and gradual.
Being gradual, according to the People's Bank of China, means the currency
exchange rate adjustment mechanism will be reformed gradually, which does not
mean the exchange rate value will have to be reformed gradually.
"We will pay close attention to the market reaction and the various effects
of the exchange rate reform, and further perfect the renminbi exchange rate
adjustment mechanism," said the central bank in its first monetary policy report
after the nation announced its unexpected scraping of the renminbi's decade-old
peg to the US dollar at the end of last month.
China introduced a currency basket to determine the exchange rate instead of
the US dollar peg on July 21.
The renminbi gained 2 per cent against the US dollar accordingly. The central
bank said the yuan will be allowed to rise or fall by 0.3 per cent a day against
the US dollar.
The central bank also pledged to introduce foreign exchange (forex)
derivative products into the market, promote currency swaps and give customers
more and better risk management tools.
Financial institutions are urged to utilize effective measures to hedge forex
risks and provide good forex solutions for enterprises in China.
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