CHINA: dollar peg abolished, more flexible RMB resumed
21.06.2010, 09:31Amid another wave of pressure mounting on China to appreciate its currency RMB, China's central bank the People's Bank of China (PBOC) said over the weekend that Beijing will "proceed further with reform of the RMB exchange rate regime and enhance the exchange rate flexibility".
That means China will abandon its de facto peg to the US dollar that has been in place since H2 2008 and resume the peg of RMB to a basket of currencies including USD, EUR, JPY, etc. But the PBOC ruled out the possibility of a one-off RMB rate hike like the one in 2005.
China had in July 2005 abolished its decade-old USD/RMB peg and raised the rate one-off by 2% to one USD for RMB 8.11. Then the rate climbed up gradually to about 6.83 in H2 2008, by nearly 20%, until the appreciation was interrupted by the global financial turmoil.
On Monday, 21 June 2010, the USD/RMB exchange rate stood at 6.8275, unchanged from Friday, 18 June. Economists expect RMB to strengthen slowly and modestly against the USD this year.
The RMB rate against euro, however, may not go up as fast as it did in the past months, now that euro is one of the currencies among the currency basket and also because the EUR/RMB rate has shed some 13% so far this year. On 21 June, the EUR/RMB rate was quoted at 8.4825, up 0.3% from 18 June.