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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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