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China discloses currency basket composition
(AP)
Updated: 2005-08-10 13:53
China disclosed for the first time Wednesday the composition of the basket of
currencies used to set the yuan's value, saying it mainly includes the U.S.
dollar, euro, yen and Korean won, the Associated Press reported.
The currencies of Singapore, Britain, Malaysia, Russia, Australia, Canada and
Thailand are also considered in setting the yuan's foreign exchange rate, Zhou
Xiaochuan, the central bank governor, said during a speech to launch a new
operations center for the People's Bank of China in Shanghai.
The news dispels at least some of the mystery surrounding the yuan's new
exchange rate, although there was no information about the weightings of each
currency.
When China cut its currency's decade-long peg to the U.S. dollar on July 21
and allowed it to move in a restricted float, it said the yuan's exchange rate
would be determined by a collection of unspecified currencies.
At that time, the central bank said only that it had raised the yuan's value
by about 2 percent to 8.11 yuan to the dollar from the previous rate of 8.27,
and that the yuan would be allowed to move 0.3 percent in either direction each
day.
Since then, the yuan has appreciated slightly on Shanghai's foreign exchange
market, opening at 8.1070 yuan to the dollar Wednesday.
China's central bank also said Wednesday that it will tighten oversight of
the country's foreign exchange markets while moving to liberalize its currency
trading regime.
The statement came a day after it announced Beijing was expanding the
country's foreign-exchange forwards business and launching currency swaps.
On Wednesday, the bank said it was also allowing nonbanking firms to trade in
its onshore foreign exchange market and was launching foreign-exchange forwards
on the domestic interbank market.
While widening currency trading onshore, the bank said it would strengthen
its oversight and management of the market "to guarantee stable, orderly market
operations and maintain the basic stability of the yuan exchange rate at a
reasonable, balanced level."
The central bank said the new rules allowing broader use of foreign exchange
derivatives were aimed at meeting the need to hedge foreign exchange risk
following the July 21 revaluation.
"The timing and conditions are ripe for expanding the forex forwards business
and launching the swaps business," the People's Bank of China said in a
statement.
China began allowing some banks to offer yuan-foreign currency forwards to
their clients beginning in 1997 as part of a pilot program. Up to now, only four
major state-owned banks and three stockholding commercial banks have
participated in the program, the central bank said.
The new rules allow all domestic banks to seek approval for conducting
forwards trading. Financial institutions given that approval will be qualified
six months later to begin swaps business.
The new rules also expand the range of forwards trading allowed.
However, the central bank said swaps of the yuan against foreign currencies
couldn't involve the exchange of interest rates, implying the transactions
wouldn't leave loopholes for trading of interest rate swaps.
Foreign banks also will be allowed to provide the derivative products to
their clients.
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