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China may calculate yuan exchange rate against basket of currencies

2010-07-23 10:36
BEIJING - China may calculate the yuan's exchange rate against a basket of currencies, instead of only against the US dollar, a Chinese central bank official said Thursday.

The People's Bank of China (PBOC), or the central bank, might publish the nominal effective exchange rate on a regular basis, Hu Xiaolian, deputy governor of the PBOC, said in her second signed article on the yuan's exchange rate regime published on the PBOC website this month.

The move might change the public's habit of focusing on the yuan's exchange rate against the dollar, Hu said.

There should be various currencies in the effective exchange rate basket to reflect the diversity of China's trade and investment activities, Hu added.

The yuan's exchange rate would be mainly adjusted according to China's trade balance, including domestic and global market trends, the international balance of payments, and the strength and bearing capabilities of local enterprises against exchange rate moves, said Hu.

"A more flexible yuan would bring certain pressure to the structural adjustment of domestic enterprises, and if trade surplus falls sharply, it might indicate that Chinese enterprises should increase some adaptability," she said.

China needed to follow a managed floating of its exchange rate, which is a fundamental need for its economic restructuring and the optimizing of the allocations of its resources, Hu said in her previous article published last week.

The PBOC announced on June 19 this year that it would further the reform of formation mechanisms of the yuan exchange rate to improve its flexibility. At the same time, it ruled out a one-off revaluation.

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