In August, China revealed the group of currencies it will use to value its own currency, the renminbi (yuan). China’s currency had been pegged at 8.28 yuan to the U.S. dollar for 10 years, but an adjustment announced on July 21 revalued it to around 8.11 yuan/dollar and opened the door for it to float (on a managed basis) against a basket of currencies (see “China abandons yuan peg,” Currency Trader, August 2005).
The U.S. dollar, Euro, Japanese yen, and South Korean won dominate the basket, which also contains the British pound, Thai baht, and Russian ruble.
In a statement, People’s Bank of China governor Zhou Xiaochuan said, “The currencies in the basket depend on the amount of foreign trade we conduct. The U.S., eurozone, Japan, and South Korea are our biggest trading partners now.”
The announcement was a surprise for some forex participants because it left out the Taiwanese dollar.
The bank also said it was allowing non-banking firms to trade in its onshore foreign exchange market.
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