19jun10

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Main features of China's currency system

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China will gradually make the yuan's exchange rate more flexible, the central bank said on Saturday a week before a G20 summit, bly suggesting that it was ready to break the currency's 23-month-old dollar peg.

A central bank statement was released following mounting pressure on Beijing to allow the yuan to appreciate in line with its economic strength since the global economy began to recover.

Here are the main features of China's currency system.

• China revised the basic rules governing its foreign exchange system after it revalued the yuan, or renminbi, by 2.1 percent against the dollar on July 21, 2005.

• China said it had shifted to "a managed floating exchange rate based on market supply and demand with reference to a basket of currencies," to replace a single exchange rate system with the central bank announcing the yuan's value on a daily basis.

• However, Beijing suspended the managed floating system in July 2008, effectively repegging the currency to the dollar to try to protect its economy from the global financial crisis.

• Chinese officials, including President Hu Jintao, had said they would continue yuan reforms initiated in 2005.

• The yuan is allowed to rise or fall by 0.5 percent a day against the dollar from an opening mid-point set by the central bank at 9.15 a.m. (0115 GMT) based on quotes collected from market makers.

• In actual trade, the yuan has almost always held within 0.15 percent of the dollar mid-point. Since mid-2008, the central bank has used the mid-point to keep the yuan within about 100 pips of 6.83 per dollar.

• The yuan's daily trading band against other major currencies is set at plus or minus 3 percent from the daily mid-point.

• The central bank has said the dollar, euro, yen and Korean won are the main currencies in its reference basket. Others include the Singapore dollar, sterling, the Malaysian ringgit, Russian rouble, Australian dollar, Thai baht and Canadian dollar. The weightings are kept secret.

[Source: Reuters, Tahiland, 19Jun10]

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