The trading price of China's currency, the RMB yuan, publicized by the People's Bank of China (PBOC) Wednesday, closed at a rate of 8.0911 to the US dollar, 189 basic points higher than two months ago when the reform on the yuan to US dollar pegging system was initially launched.

At its recent quarterly regular meeting, the Currency Policy Committee of the PBOC affirmed the effects of the reform of the RMB's exchange rate, saying that in the past two months when the new currency rate system has been operating, the currency rate of Chinese yuan has become more flexible while maintaining basically stable and the expectation for a larger appreciation range is shrinking.

Facts show that the reform on Chinese yuan exchange rate has primarily reached the goal of building a more flexible RMB exchange rate forming mechanism.

Since October 2004, the Chinese yuan has been pegged to the US dollar at the rate of one dollar for 8.2765 yuan, which was scrapped when the reform was launched on July 21 and since then the yuan was fixed at a market basket of currencies.

In the 44 trading days since July 22, the closing trading rate between the RMB and the US dollar witnessed a two-way fluctuation with 26 days of appreciation and 18 days of depreciation and a general appreciation trend.

During that period, the closing trading rate between the RMB and the US dollar has been fluctuating from up to 8.1128 and down to 8.0871, within a range of 257 basic points.

On the other hand, market signals such as RMB Non-Deliverable Forward (NDF) show that expectation for further appreciation of the RMB in a long time run has been weakening.

By introducing fluctuating factors of other major international currencies, the reform has realized a two-way fluctuating trend of the Chinese yuan to the US dollar, which has effectively restrained speculations on one-way change of the yuan, said an official with the State Administration of Foreign Exchange.

"Whether we could effectively refrain speculation on yuan is the key to the success or failure of the reform," said the official.

Since the new mechanism was launched, market has been playing a more and more important role in the forming of the RMB exchange rate.

A series of measures has been taken by the PBOC in the past two months including allowing non-financial institution to trade in the market, and introducing such financial derivative products as forward and swaps to enhance the development of inter-bank money market. While control on foreign exchange has been loosened gradually, the forming of RMB currency rate could reflect demand and supply of the market to a larger extent.

Ma Delun, an assistant to the governor of the PBOC, said recently that with a new floating exchange rate regime in place in which the market is playing a more important role, the yuan's value "will no longer be adjusted through administrative measures."

The conference of seven western countries financial ministers to be held this weekend has incited a higher expectation for a more valuable yuan.

As Chinese enterprises, financial institutions and citizens all need a period of time to adapt and adjust to the new flexible mechanism, no large fluctuation of the RMB exchange rate is expected as China is due to expand the fluctuation range gradually while maintaining a basically stable RMB, said Li Yang, director of the Institute of Finance and Banking, the Chinese Academy of Social Sciences.

Source: Xinhua