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China widens yuan, non-dollar trading range to 3%(09/23/05)


   The People's Bank of China, the country's central bank, on September 23 announced to raise the float range of Renminbi exchange rate against non-US dollars from previous 1.5 percent to 3 percent.

    The bank, however, does not change the float range of Renminbi exchange rate against US dollars in the inter-bank foreign exchange market.

    After China abruptly allowed its currency, the yuan, to appreciate by a modest 2 percent on July 21, the trading price between US dollars and yuan can be fluctuated within 0.3 percent in the inter-bank foreign exchange market, and the trading price between non-US dollars and yuan can be fluctuated within 1.5 percent.

    According to a circular issued by the central bank recently on the management of trading price in the inter-bank foreign exchange market, the gap between the selling and purchase price of US dollars in spot exchange cannot exceed 1 percent of the trading middle price, and the gap between cash selling and purchase price cannot exceed 4 percent of the trading middle price.

    Banks can adjust the daily posted price of US dollars within the regulated price range, according to the circular, which abolished limit on the gap range concerning non-US dollar prices posted by clients.

    Banks can decide the prices between non-US dollars and Renminbi by their own, according to the circular.

    The above measures will help banks to enhance their capabilities in deciding prices by their own, to manage price risks more effectively, to provide better services for clients through fair and orderly competitions, to manage and adjust yuan's exchange rate on the basis of market supply and demand and with reference to a basket of currencies, and to make full use of market in forming exchange rates and avoiding risks, the central bank said.

    Loosening the control over posted US dollar price gap will increase the transaction cost of speculations and safeguard the basic stabilization of yuan's exchange rate, the central bank said.

    The central bank and the State Administration of Foreign Exchange will continue the reform of the RMB exchange rate regime in an active, controllable and gradual way, so as to make the exchange rate regime more flexible and maintain RMB exchange rate's basic stability at a reasonable equilibrium, the central bank said.

    Facts show that the reform on the Chinese yuan exchange rate has primarily reached the goal of building a more flexible RMB exchange rate forming mechanism.

    The trading price of China's currency, the RMB yuan, publicized by the People's Bank of China Wednesday, closed at a rate of 8.0911 to the US dollar, 189 basic points higher than two months ago when the reform on the yuan to US dollar pegging system was initially launched.




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