China decides to further reform RMB exchange rate regime

10:43, June 20, 2010

The People's Bank of China, China's central bank, has decided to proceed further with the reform of the Renminbi exchange rate regime to enhance the RMB exchange rate flexibility, a spokesperson of the central bank said Saturday.

The decision was made in view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the spokesperson said in a statement.

In further proceeding with the reform, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market, the spokesman said.

The spokesperson said China's external trade is becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010.

"With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist," the spokesperson said.

The PBOC will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China, the spokesperson said.

China has moved into a managed floating exchange rate regime based on market supply and demand with reference of a basket of currencies since July 1, 2005.

The spokesperson said the reform of the RMB exchange rate regime has been making steady progress since 2005, producing the anticipated results and playing a positive role.

With the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the U.S. dollar depreciated by varying margins.

"The stability of the RMB exchange rate has played an important role in mitigating the crisis' impact, contributing significantly to Asian and global recovery, and demonstrating China's efforts in promoting global rebalancing," the spokesperson said.

The gradual recovery of the global economy and upturn of the Chinese economy has become more solid with enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility, said the spokesperson.

Source: Xinhua