China's Managed Float

Topics: Foreign exchange market, Central bank, Currency Pages: 1 (335 words) Published: May 16, 2013
China may continue managed floatingexchange rate regime for next eight years:central bank advisor (Xinhua)
13:55, August 05, 2011   
China may continue to institute a managed floating exchange rate regime that is tied toa basket of foreign currencies for the next eight or nine years, the China SecuritiesJournal said Thursday.

The RMB is unlikely to be floated freely in the near term as the country's economyfaces internal difficulties during its reform drive and external uncertainties of the globaleconomy, the report quoted Xia Bin, a member of the monetary policy committee of thePeople's Bank of China (PBOC), or the central bank, as saying.

"To create a relatively stable exchange rate formation environment, the governmenthas to gradually open its capital market, so the RMB can not go global too soon," Xiasaid in his latest article.

But the regime will be more market-oriented in terms of floating range and frequency,and adopt relevant adjustments of currency weights in the basket, Xia said.

China moved to shift from a conventional dollar peg system to a managed floatingexchange rate system in 2005, which means the central bank now does not link theyuan only to the U.S. dollar.

China's RMB "go global" drive requires totally free exchange of the yuan, which meansthe regulation of capital accounts should be fully opened, and that exchange rates willbe largely determined by the demand and supply in both domestic and global markets.But the country can not handle this at its current stage of economic development, Xiasaid.

Xia suggested that the government should well coordinate policies concerning theexchange rate, capital management and reform while matching the reform of itsexchange rate policy with that of capital management during the RMB's regionalizationprocess.

According to Xia, establishing offshore RMB markets will not only help partially open thecountry's financial market, but also reduce the impact of international financial crises....
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