In its second quarter report released yesterday, the People's Bank of China, the country's central bank, said the range of movement of the renminbi (RMB) exchange rate will be adjusted at the "proper time," based on the market situation and economic and financial circumstances.
It said this would be done on the basis of market supply and demand and with reference to a basket of currencies, adding that this would maintain the yuan's basic stability at a reasonable equilibrium, keep the basic balance of international payments and safeguard stability of the economy and financial markets.
Since China allowed the yuan to appreciate by a modest 2 percent on July 21, the trading price between it and US dollar can fluctuate within 0.3 percent on the inter-bank foreign exchange market, and that with other currencies within 1.5 percent.
"A revaluation of the renminbi by 2 percent, effective at the beginning of the exchange rate regime reform, does not in the least imply an initial move which warrants further actions in the future," the central bank said.
"Gradualism" is the principle applied in the reform of the renminbi exchange rate regime, rather than in the adjustment of the renminbi exchange rate, it added. "The reform is focused not on the quantitative adjustment of the renminbi exchange rate but on the improvement of the renminbi exchange rate regime."
According to the report, reform of the exchange rate is designed to serve China's fundamental interests and benefit the national economy, enterprises and people's lives in general.
China's GDP and per capita wealth in US dollars went up correspondingly after the yuan's appreciation by about 2 percent, the central bank said.
The appreciation has spurred imports and reduced exports, which may rein-in the runaway growth of China's trade surplus and foreign exchange reserves, and gradually help fulfill the basic balance of exports and imports as well as that of international payments, it said.
This will lead to more efficient use of resources, alleviate pressure on the renminbi, make monetary policy more independent, and financial control more active and effective, as well as maintaining a balanced overall economy, the bank said.
The yuan's appreciation will have a positive impact upon people's lives, as it will lower the prices of imported goods in the market and lead to cheaper overseas travel for Chinese people, it said.
(China Daily, Xinhua News Agency August 5, 2005)
