Nation says RMB not to float by big margin
(Xinhua)
Updated: 2005-07-22 06:56

China abruptly on Thursday evening allowed its currency, the yuan, to appreciate by a modest 2 percent, but said its exchange rate will not float by a big margin, aiming apparently to ward off speculative activities betting on the yuan's further jumps.

The overall aim of exchange rate reform is to build a managed, floating exchange rate mechanism based on market supply and demand and to maintain the yuan's basic stability at a reasonable equilibrium, the People's Bank of China (PBoC), or the central bank, said.

Big ups and downs of the exchange rate are not in line with the fundamental interests of China since such fluctuation will pose a fairly big threat against the country's economic and financial stability, it said.

"The circumstance (the yuan's big ups and downs) will definitely not happen," the bank told the press.

Firstly, the renminbi will no longer be pegged to a single currency following the rate reform. Instead, as the value of the yuan will be adjusted with reference to a basket of currencies, the mutual changes of major currencies in the world market will reduce the yuan's fluctuation.

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