Factbox: China may resume semi-floating yuan exchange rate

SHANGHAI (BestGrowthStock) – China paved the way for a depegging of its yuan against the dollar in place since July 2008 by pledging last month that it would push forward currency reforms and improve the yuan’s exchange rate mechanisms.

Here are the main features of the system China may return to.

— China revised the basic rules governing its foreign exchange system after it revalued the yuan, or renminbi, by 2.1 percent against the dollar on July 21, 2005.

— China said it had shifted to “a managed floating exchange rate based on market supply and demand with reference to a basket of currencies,” to replace a single exchange rate system with the central bank announcing the yuan’s value on a daily basis.

— However, Beijing has suspended the managed floating system in July 2008, effectively repegging the currency to the dollar to try to protect its economy from the global financial crisis.

— Chinese officials, including President Hu Jintao, have now said they would continue yuan reforms initiated in 2005.

— Under the reforms, the yuan is allowed to rise or fall by 0.5 percent a day against the dollar from an opening mid-point set by the central bank at 9.15 a.m. (0115 GMT) based on quotes collected from market makers.

— In actual trade, the yuan has almost always held within 0.15 percent of the dollar mid-point. Since mid-2008, the central bank has used the mid-point to keep the yuan within about 100 pips of 6.83 per dollar.

— The yuan’s daily trading band against other major currencies is set at plus or minus 3 percent from the daily mid-point.

— The central bank has said the dollar, euro, yen and Korean won are the main currencies in its reference basket. Others include the Singapore dollar, sterling, the Malaysian ringgit, Russian rouble, Australian dollar, Thai baht and Canadian dollar. The weightings are secret.

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(Reporting by Lu Jianxin and Edmund Klamann; Editing by Neil Fullick)

Factbox: China may resume semi-floating yuan exchange rate