The Hindu : Business : China scraps dollar peg

Online edition of India's National Newspaper
Friday, Jul 22, 2005

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Business

China scraps dollar peg

Yuan revalued, linked to basket of trade-weighted currencies

BEIJINGWASHINGTON: China on Thursday revalued its currency for the first time in about a decade, scrapping the peg to the dollar in favour of a basket of currencies.

The currency is now valued at 8.11 yuan to the U.S. dollar compared to the old rate of 8.2765 yuan, effectively a two per cent revaluation.

The move was effective from 1100 GMT.

"From today, the renminbi rate against the U.S. dollar will appreciate by 2 per cent,'' said the website of China's central bank, the People's Bank of China, (PBOC). "One U.S. dollar will exchange for 8.11 yuan.''

Malaysia follows suit

Almost simultaneously, Malaysia scrapped the ringgit currency's peg to the dollar and said it would move to a managed float.

The dollar sank to 110.38 yen immediately following the Chinese announcement. It had stood at 112.50 yen before the move.

The PBOC also said it has scrapped the yuan peg to the U.S. dollar and repegged the Chinese unit to a basket of trade-weighted currencies, but did not reveal what they were.

Previously, the foreign exchange trade centre said it could include the Hong Kong dollar, the yen, the pound sterline, the Swiss franc, the Australian dollar, Canadian dollar and the euro.

China's yuan, or renminbi, has been pegged to the dollar at 8.28 since 1997.

The last time the Chinese government revalued it was in 1994 when Beijing devalued the currency by over 50 per cent, from 5.70 or so to 8.30, from whence it moved up to 8.28 by 1997 where the authorities have held it ever since.

China has come under intense pressure from its trade partners, especially the United States, to revalue the yuan in recent months.

On Wednesday, US Federal Reserve Chief Alan Greenspan warned that Beijing's policy of pegging the currency to the dollar could cause "very serious'' problems for the giant Asian economy.

U.S. officials have long argued the yuan's fixed exchange rate against the dollar has left the Chinese currency significantly undervalued, lifting Chinese exports, giving them an unfair advantage, and inflating the U.S. trade deficit.

The trading band that allows the yuan to move 0.3 per cent either side of the mid-point is unchanged, the central bank said. — AFP

U.S. hails move

BEIJINGWASHINGTON: The United States on Thursday praised China's decision to move to a more flexible currency system but said it planned to monitor the country's implementation of the new arrangement. — AP

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