May 18 was an embarrassing day for those predicting the Renminbi (Rumba's appreciation as the exchange rate against the US dollar remained at the stable level of about 8.27 to 1.

On the same day, however, China expanded its forex trading system by starting trading eight new foreign currency pairs. Priorto that the yuan was paired in trading with only four currencies: the US dollar, the Hong Kong dollar, Japanese yen and the euro.

According to the central bank, the expansion of the forex trading system will not involve Chinese currency. Seven currencies will be paired against the US dollar beginning Wednesday: the euro, Australian dollar, British pound, Japanese yen, Canadian dollar, Swiss franc and Hong Kong dollar. The eighth new set will pair the euro against the Japanese yen.

The expansion of the system earlier raised intense speculation on whether China will appreciate the yuan on the same day. But the central bank Governor Zhou Xiaochuan last Friday denied overseas media reports about RMB appreciation.

"Can we take that seriously? Of course not," Zhou said in response to a question raised by Xinhua correspondent.

"It is foreigners, especially some individual foreigners, who predicted the yuan's appreciation on May 18," he said.

Chinese Premier Wen Jiabao stressed Monday that China will never yield to outside pressure on RMB exchange rate regime, saying that any forex reform belongs to China's sovereignty.

Probably due to external pressure from the United States, people again began to discuss the possibility of the yuan's appreciation. On May 17, the US Department of the Treasury issued a report, asking China to speed up its reform of the RMB exchange rate regime.

Overseas research institutions predicted the yuan's appreciation on May 18 due to inadequate knowledge about China's forex trading system expansion, said an unnamed official with the central bank.

But overseas predictors still got one point correct, that is, the expansion of foreign exchange trading system is linked with the reform on RMB exchange rate, said the official.

The forex trade expansion will improve the RMB forex mechanism and provide experience for future RMB's full convertibility, acknowledged the official.

Forex trade expansion gives more chances to companies and individuals for forex investment and helps to ease the pressure on RMB exchange rate, said Wang Yungui, an official with the State Administration of Foreign Exchange.

China has maintained a unified, managed floating exchange rate regime based on supply and demand of foreign exchange in the market since 1994. The yuan appreciated 38 percent against the US dollar between 1994 to 1997. When the financial crisis swept Asia in 1997, China insisted on not devaluing its currency and kept the RMB exchange rate stable in a responsible manner, and narrowed the floating scope of the RMB exchange rate since then.

With the devaluation of the US dollar in recent years, the RMB exchange rate against other major currencies was dropping, which some foreigners claimed was a measure by the Chinese government to stimulate its soaring exports.

But China did not lower the yuan artificially to pursue its own interests, the country's former foreign exchange chief Guo Shuqing said recently.

Chinese leaders have said on several occasions that there is no timetable for the exchange rate reform, and it is a complex job and should be done step by step.

Source: Xinhua