China stops pegging yuan to dollar

China stops pegging yuan to dollar

China changed its currency policy as of 11:00 GMT today, revaluing the yuan (RMB) nearly two percent against the US dollar. According to new arrangement, China enters into a managed floating exchange regime based on market supply and demand with reference to a basket of currencies. The RMB will no longer be pegged to the US dollar, allowing the RMB exchange rate regime a much greater degree of flexibility. Under the new policy, the People's Bank of China will announce the closing price of a foreign currency traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each working day. The announced rate will then become the reference point for trading against the RMB on the following working day. On this first day of the new exchange regime, China revalued the RMB 2.1 percent against US dollar, from RMB 8.28 to RMB 8.11 per US dollar. The daily trading price of the US dollar against the RMB in the inter-bank foreign exchange market will continue to be allowed to float within a band of 0.3 percent around the central parity published by the People's Bank of China. The trading prices of other foreign currencies against the RMB will be allowed to move within a certain band announced by the People's Bank of China. A growing trade surplus, nearly $40 billion through the first half of this year, and the addition of nearly 17 percent to the country’s foreign exchange reserves, at $711 billion by the end of June, increased the pressure on China to revalue its currency.