News from State Administration of Foreign Exchange said that it has decided to introduce a market maker system in inter-bank forex markets, and to implement the spot-enquiry transaction method at the beginning of next year.

An article carried on Xinhuanet said that the market maker system is a revolutionary step China has taken in its foreign exchange reform, with the significance no less than RMB appreciation in July this year.

RMB exchange rate that has been soaring hit another record high since State Administration of Foreign Exchange announced to introduce the market maker system in inter-bank foreign exchange market. The notes buying for RMB in Nov 25 against USD has gone below eight yuan for the first time, setting a new record since the reform of foreign exchange rates in China.

Buying and selling of foreign currency in the inter-bank foreign exchange market was introduced on May 18, 2005. Of the business which has been dubbed "China setting up a experimental platform for complete convertibility of the RMB" the official introduction of market maker system is the most eye-catching.

Introduction of the market maker system in the inter-bank market means the central bank will gradually retire from the most important market and hand the power to the market.

The official introduction of market maker system will further boost the development of inter-bank foreign exchange market, perfect the auxiliary measures for RMB exchange rate mechanism, enliven the environment of foreign exchange market, raise the fluidity of foreign exchange market, strengthen the flexibility of control by central bank as well as further enhance the marketalization process of RMB exchange rate.

The article said that compared with central banks of too much administrative colour, commercial banks playing the role of market maker need not consider such factors as foreign exchange position and cost of funds, which means market will take policy's place in pricing foreign exchanges, or even playing a decisive role in the RMB-USD market.

Insiders held that such a move will lay foundation for the marketalization process after China eases foreign exchange control.

By People's Daily Online