Source: CRI

02-28-2008 17:30

"The reform represents the progress of purchasing power in China. It will also provide more job opportunities for the public."

China's announced revocation of the yuan's pegging to the dollar has broken a decade-long rigid exchange rate system and allowed the currency to regain its leverage on the economy. CRI reporter Wei Tong takes a closer look.

At 7 pm Thursday, the yuan, which had been fixed to near 8.27 per US dollar since 1996, was tied instead to a basket of currencies of China's main trading partners.

The People's Bank of China, or China's central bank says the reform has raised the value of the yuan by 2.1 percent to 8.11 per US dollar. In the future, the yuan will be allowed to move in a range of 0.3 percent up or down from the previous day's close.

Governor of the People's Bank of China Zhou Xiaochuan, points out that China made this decision at the time when Chinese financial market has been getting more mature.

"The reform of exchange rate requires a stable macro-economy and healthy financial institutions and market. We have always tried to innovate large-scale commercial banks first to improve their financial conditions so as to acquire the prerequisite of exchange rate reform. Now we have got the basic conditions."

Zhou Xiaochuan adds that the reform will carry out a floating exchange rate, in which the market demand and supply will play a more essential role. Now China has made preparations to liberalize the use, demand and conversion of foreign currency, so as to enable the market to reflect more the relationship between supply and demand.

He also called on both export and import enterprises to make use of the tools offered by the floating financial market, to protect their own interests.

Zhou Xiaochuan analyzed that in general, the floating exchange rate of the yuan will bring more benefit to enterprises and public than a negative impact:

"Import enterprises will benefit from the reform while export enterprises are likely to suffer greater pressure. It has given impetus to domestic enterprises to manufacture more products with advanced technology so as to raise the competitiveness. The reform represents the progress of purchasing power in China. It will also provide more job opportunities for the public."

Zhou Xiaochuan said under the previous rigid exchange rate system, China's central bank had to control the money supply and capital flow on the condition of having a fixed exchange rate. The central bank's independence in establishing monetary policies was thus jeopardized. So this is quite a necessary step.

Wei Tong, CRI News.

2005-7-24

 

Editor:Xiong Qu