Introducing it as a step to “establish and improve the socialist market economic system in China,” on July 21, 2005, the People’s Bank of China issued a short statement regarding its new foreign exchange policy. The highlights:
1. The exchange rate of the U.S. dollar against the remninbi (RMB) will be adjusted to 8.11 yuan per U.S. dollar (a 2-percent downward adjustment from the former rate of 8.28).
2. China will use a “managed floating exchange rate regime based on market supply and demand,” whereby the RMB will no longer be pegged to the U.S. dollar and will instead be valued against a basket of currencies.
3. The daily U.S. dollar/RMB rate will be allowed to float within a ±0.3 percent band around the “central parity” published by the PBOC, and the prices of other currencies against the RMB will be able to move within certain bands to be announced by the PBOC. The PBOC will adjust the RMB exchange rate band “when necessary according to market development as well as the economic and financial situation.”
The full text of the announcement can be found at www.pbc.gov.cn/english/.
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