A characteristic, rationally ranged reform
On July 21, a central bank spokesperson narrated the content of the RMB exchange rate reform as follows:
The RMB exchange rate ceases being pegged exclusively to US dollar, instead, it will, in light of the actual conditions of China's foreign economic development, choose several kinds of principal currencies and give them appropriate weights and form a currency basket. At the same time, it will, in light of the domestic and foreign economic and financial situation, institutes a managed floating exchange rate based on market supply and demand and in reference to a basket of currencies to calculate the change of the multilateral exchange rate indexes of the RMB, and maintain the basic stability of the RMB exchange rate on a rational, balanced level. In accordance with the estimate of a rational, balanced level of exchange rate, the RMB was revalued by 2 percent on July 21, that is, one US dollar against 8.11 yuan.
It should be noted that "in reference to one basket" is not tantamount to "being pegged to one basket".
According to experts, being pegged to a basket of currencies refers to weighing and calculating the cross rates of exchange in accordance with the category of a definitive currency, in this way, the authorities of a country's currency are basically denied of the price-setting initiative for the exchange rate; "with reference to a basket", on its part, indicates that the authorities can take the market supply-demand relationship as another important basis for exchange rate price-setting, thereby forming a managed floating exchange rate.
According to the statistics of the International Monetary Fund, by 2002, there were only nine countries in the world which introduced a pegged basket exchange rate mechanism and which were countries with a very small population and economic scale.
It is obviously at variance with the actual national condition for China, a large, most populous country with its economic aggregate being ranked seventh in the world, to institute a pegged basket exchange rate mechanism.
The adjusted range of 2 percent revaluation was determined mainly by the degree of China's trade surplus and the need of structural adjustment and in the meantime by taking into account the domestic enterprises' adaptability for structural adjustment.
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