Public Announcement of the People's Bank of China on Reforming the RMB Exchange Rate Regime

Peoples Bank of China ^ | 7/21/05 | Peoples Bank of China

[Heebert]

With a view to establish and improve the socialist market economic system in China, enable the market to fully play its role in resource allocation as well as to put in place and further strengthen the managed floating exchange rate regime based on market supply and demand, the People's Bank of China, with authorization of the State Council, is hereby making the following announcements regarding reforming the RMB exchange rate regime:

1. Starting from July 21, 2005, China will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the US dollar and the RMB exchange rate regime will be improved with greater flexibility.

2. The People's Bank of China will announce the closing price of a foreign currency such as the US dollar traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each working day, and will make it the central parity for the trading against the RMB on the following working day.

3. The exchange rate of the US dollar against the RMB will be adjusted to 8.11 yuan per US dollar at the time of 19:00 hours of July 21, 2005. The foreign exchange designated banks may since adjust quotations of foreign currencies to their customers.

4. The daily trading price of the US dollar against the RMB in the inter-bank foreign exchange market will continue to be allowed to float within a band of ��0.3 percent around the central parity published by the People's Bank of China, while the trading prices of the non-US dollar currencies against the RMB will be allowed to move within a certain band announced by the People's Bank of China.

The People's Bank of China will make adjustment of the RMB exchange rate band when necessary according to market development as well as the economic and financial situation. The RMB exchange rate will be more flexible based on market condition with reference to a basket of currencies. The People's Bank of China is responsible for maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level, so as to promote the basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability.

[Heebert]

Okay, does anybody really think this is going to change anything? 2% is really nothing to be excited about. This isn't going to affect the trade balance, this is only serving to pacify the political pressures here in the US in order to avoid a much stiffer penelty. The chinese have mentioned nothing about the so called basket of currencies they are using to peg the yuan. Transparency at its greatest to say the least. This will serve to have a bullish effect of equities because this should seemingly increase exports...albeit only a tad. It will hurt those corporations that import goods from china. Because the chinese are backing off of their currency manipulation, the debt market will experience the bearish of bearish reactions. Expect yields to soar on this one. Along with this, everything that the chinese buy, including oil will get cheaper for them increasing their purchasing power. Fun stuff...and it has only just begun.

[RegulatorCountry]

"The People's Bank of China will announce the closing price of a foreign currency such as the US dollar"

LOL. Nope, no "peg" there. None whatsoever.

[EagleUSA]

2% is really nothing to be excited about.
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Just another stroke-job from the ChiComs so the Washington politicos can say they took China to task and won! (barf bucket please).