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Official: floating band of yuan will not change
Updated: 2005-09-26 08:36

A senior official of China's central bank said Sunday that the formation mechanism of the Renminbi (RMB) exchange rate against the US dollar in the inter-bank market and the floating band remain unchanged.

On Friday, the People's Bank of China, China's central bank, announced that the floating band of RMB trading rates against non-dollar currencies has been expanded from 1.5 percent to three percent.

"This move doesn't mean fundamental change of RMB exchange rate formation mechanism," said Hu Xiaolian, Deputy Governor of China's central bank.

Hu made the remarks at a seminar hosted by JP Morgan Chase in Washington while she was attending the annual meeting of the International Monetary Fund and the World Bank.

She said that expanding the floating band of RMB rates against non-dollar currencies is intended to give more room for commercial banks to control risk and wipe out the arbitrage opportunity.

"In response to some problems experienced by banks in their quoting rates to clients, some adjustment was made to expand the buying-selling rates spread, which is now basically consistent with other countries' practice in the range of quotation rates," she said.

"This move serves to give commercial banks more discretion in pricing so that they can effectively balance the return with cost and manage risks," Hu added.

She said that the move may also increase transaction costs of speculators, thus contributing to maintaining the RMB exchange rate basically stable.

Hu said that the move, a technical step to improve the RMB exchange rate management mechanism, is in the long-term conducive to allowing market to play a bigger role in deciding exchange rates and facilitating risk management by financial institutions and enterprises.

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