Spokesperson of the People's Bank of China Answers Questions on Enlarging the Floating Band of the RMB Trading Prices against the US Dollar in the Inter-bank Spot Foreign Exchange Market
May 18, 2007
Q: What is the major content of enlarging the floating band of the RMB trading prices against the US dollar in the inter-bank spot foreign exchange market?
A: The People's Bank of China (PBC) has decided to expand the floating band of RMB trading prices against the US dollar in the inter-bank spot foreign exchange market from 0.3% to 0.5% effective May 21 Date, 2007, i.e. on each business day, the trading prices of the RMB against the US dollar in the inter-bank spot foreign exchange market will float within a band of ±0.5 percent around the central parity publicized on the same day by the China Foreign Exchange Trading System. The administrative rules governing the floating band of the RMB trading prices against non-US dollar currencies in the inter-bank spot foreign exchange market and the spread between the RMB/USD selling and buying prices quoted by the foreign exchange-designated banks remain unchanged, i.e. the Circular on Further Improving the Management of the Trading Prices in the Inter-bank Foreign Exchange Market and the Quoted Exchange Rates of the Foreign Exchange-Designated Banks (PBC Document No. [2005] 250) released on September 23, 2005 is still valid.
Q: What are the major considerations of the PBC when making the decision to enlarge the floating band of RMB/USD trading prices in the inter-bank spot foreign exchange market?
A: With the reform of RMB exchange rate regime on July 21, 2005, China has established a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. According to the principle of reforming the RMB exchange rate regime in a self-initiated, controllable and gradual way, and in consideration that enterprises, individuals and financial institutions would need time to adapt to the new regime, the PBC kept the daily RMB exchange rate floating band at 0.3%, which was put into effect in 1994, while standing ready to make adjustment in light of market development as well as economic and financial conditions.
Following the reform of RMB exchange rate regime, the PBC has taken a series of supporting measures to foster development of the foreign exchange market. Substantive progress has been made. Meanwhile, the Chinese economy is undergoing a steady and relatively fast growth; the financial reform is further deepened. All these factors have created a favorable condition for further improving the exchange rate regime. In terms of international experiences, most emerging market economies have gone through a process of gradually enlarging the floating band when moving from a fixed exchange rate regime to a floating one. Now that the reform has entered a 3rd calendar year in China, enterprises, individuals and financial institutions have basically adapted to the managed floating regime. Widening the RMB/USD exchange rate floating band in the inter-bank spot foreign exchange market will promote further development of the foreign exchange market, increase the flexibility of RMB exchange rate, help improve competitiveness and resilience of enterprises, enhance the pricing and risk management capabilities of financial institutions, and enable the economy to perform in a more flexible way.
Q: Do you expect large fluctuations of the RMB exchange rate after the floating band is enlarged?
A: Enlarging the floating band of RMB/USD trading prices in the inter-bank spot foreign exchange market is another institutional enhancement to improve the RMB exchange rate regime. It does not mean that the RMB exchange rate will see large ups and downs, nor large appreciations. According to the current exchange rate regime, the RMB exchange rate is capable of floating in both directions with the fluctuations in market supply and demand and in the exchange rates among major currencies. A market maker system has been introduced in the inter-bank foreign exchange market, and the main tasks of market makers are to provide liquidity and balance demand and supply in the marketplace. This helps to avoid excessive price fluctuations in the foreign exchange market. Furthermore, the RMB is no longer pegged to any single currency, but moves with reference to a basket of currencies. As a matter of fact, exchange rate movements of major currencies in the international market also help smooth fluctuations of the RMB exchange rate.
With the fundamental role in resource allocation played by exchange rate and other economic leverages enhanced, relationship between supply of and demand for foreign exchange further straightened out, and market mechanism for adjusting balance of payments established and gradually improved, China's balance of payments is expected to move toward a general equilibrium. This will lay a solid foundation for RMB exchange rate stability. Moreover, we will continue to coordinate macroeconomic policies, steadily promote reform in various sectors and improve foreign exchange management to create a favorable policy environment for exchange rate stability, and keep the exchange rate basically stable at an adaptive and equilibrium level.
※ 출처: 人民銀行
May 18, 2007
Q: What is the major content of enlarging the floating band of the RMB trading prices against the US dollar in the inter-bank spot foreign exchange market?
A: The People's Bank of China (PBC) has decided to expand the floating band of RMB trading prices against the US dollar in the inter-bank spot foreign exchange market from 0.3% to 0.5% effective May 21 Date, 2007, i.e. on each business day, the trading prices of the RMB against the US dollar in the inter-bank spot foreign exchange market will float within a band of ±0.5 percent around the central parity publicized on the same day by the China Foreign Exchange Trading System. The administrative rules governing the floating band of the RMB trading prices against non-US dollar currencies in the inter-bank spot foreign exchange market and the spread between the RMB/USD selling and buying prices quoted by the foreign exchange-designated banks remain unchanged, i.e. the Circular on Further Improving the Management of the Trading Prices in the Inter-bank Foreign Exchange Market and the Quoted Exchange Rates of the Foreign Exchange-Designated Banks (PBC Document No. [2005] 250) released on September 23, 2005 is still valid.
Q: What are the major considerations of the PBC when making the decision to enlarge the floating band of RMB/USD trading prices in the inter-bank spot foreign exchange market?
A: With the reform of RMB exchange rate regime on July 21, 2005, China has established a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. According to the principle of reforming the RMB exchange rate regime in a self-initiated, controllable and gradual way, and in consideration that enterprises, individuals and financial institutions would need time to adapt to the new regime, the PBC kept the daily RMB exchange rate floating band at 0.3%, which was put into effect in 1994, while standing ready to make adjustment in light of market development as well as economic and financial conditions.
Following the reform of RMB exchange rate regime, the PBC has taken a series of supporting measures to foster development of the foreign exchange market. Substantive progress has been made. Meanwhile, the Chinese economy is undergoing a steady and relatively fast growth; the financial reform is further deepened. All these factors have created a favorable condition for further improving the exchange rate regime. In terms of international experiences, most emerging market economies have gone through a process of gradually enlarging the floating band when moving from a fixed exchange rate regime to a floating one. Now that the reform has entered a 3rd calendar year in China, enterprises, individuals and financial institutions have basically adapted to the managed floating regime. Widening the RMB/USD exchange rate floating band in the inter-bank spot foreign exchange market will promote further development of the foreign exchange market, increase the flexibility of RMB exchange rate, help improve competitiveness and resilience of enterprises, enhance the pricing and risk management capabilities of financial institutions, and enable the economy to perform in a more flexible way.
Q: Do you expect large fluctuations of the RMB exchange rate after the floating band is enlarged?
A: Enlarging the floating band of RMB/USD trading prices in the inter-bank spot foreign exchange market is another institutional enhancement to improve the RMB exchange rate regime. It does not mean that the RMB exchange rate will see large ups and downs, nor large appreciations. According to the current exchange rate regime, the RMB exchange rate is capable of floating in both directions with the fluctuations in market supply and demand and in the exchange rates among major currencies. A market maker system has been introduced in the inter-bank foreign exchange market, and the main tasks of market makers are to provide liquidity and balance demand and supply in the marketplace. This helps to avoid excessive price fluctuations in the foreign exchange market. Furthermore, the RMB is no longer pegged to any single currency, but moves with reference to a basket of currencies. As a matter of fact, exchange rate movements of major currencies in the international market also help smooth fluctuations of the RMB exchange rate.
With the fundamental role in resource allocation played by exchange rate and other economic leverages enhanced, relationship between supply of and demand for foreign exchange further straightened out, and market mechanism for adjusting balance of payments established and gradually improved, China's balance of payments is expected to move toward a general equilibrium. This will lay a solid foundation for RMB exchange rate stability. Moreover, we will continue to coordinate macroeconomic policies, steadily promote reform in various sectors and improve foreign exchange management to create a favorable policy environment for exchange rate stability, and keep the exchange rate basically stable at an adaptive and equilibrium level.
※ 출처: 人民銀行
