China Hints at Yuan’s Departure From Dollar Peg

Reuters
Wednesday, Nov 11th, 2009

China said on Wednesday it will consider major currencies in guiding the yuan, suggesting a departure from an effective dollar peg that has been in place since the middle of last year.

The reference to a new set of benchmarks for determining the value of the yuan holds out the possibility of a departure from recent practice, which has seen the currency held steady since mid-2008 around 6.83 per dollar.

“Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange rate formation mechanism,” the central bank said in a 46-page monetary policy report.

It was the first time since the landmark revaluation and launching of forex reforms in July 2005 that the People’s Bank of China has strayed from the language of keeping the yuan “basically stable at a reasonable and balanced level” when discussing future forex reforms in such quarterly reports.

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