China disclosed for the first time yesterday the composition of the basket of currencies used to set the yuan's value, saying it mainly includes the US dollar, euro, yen and South Korean won.
The currencies of Singapore, Britain, Malaysia, Russia, Australia, Canada and Thailand are also considered in setting the yuan's foreign exchange rate, Zhou Xiaochuan (
The news dispels at least some of the mystery surrounding the yuan's new exchange rate, although there was no information about the weightings of each currency.
When China cut its currency's decade-long peg to the US dollar on July 21 and allowed it to move in a restricted float, it said the yuan's exchange rate would be determined by a collection of unspecified currencies.
At that time, the central bank said only that it had raised the yuan's value by about 2 percent to 8.11 yuan to the dollar from the previous rate of 8.27, and that the yuan would be allowed to move 0.3 percent up or down each day.
Since then, the yuan has appreciated slightly on Shanghai's restricted foreign exchange market, opening at 8.1070 yuan to the US dollar yesterday.
The central bank also said yesterday that it will tighten oversight of foreign-exchange markets while moving toward liberalizing its currency trading regime. The statement came a day after it announced Beijing was expanding the country's foreign-exchange forwards business and launching currency swaps.
Yesterday the bank said it was also allowing nonbanking firms to trade in its onshore foreign exchange market and was launching foreign-exchange forwards on the domestic interbank market.
While widening currency trading onshore, the bank said it would strengthen its oversight and management of the market "to guarantee stable, orderly market operations and maintain the basic stability of the yuan exchange rate at a reasonable, balanced level."
The central bank said the new rules allowing broader use of foreign exchange derivatives were aimed at meeting the need to hedge foreign exchange risk following the July 21 revaluation.
"The timing and conditions are ripe for expanding the forex forwards business and launching the swaps business," the People's Bank of China said in a statement.
The new rules allow all domestic banks to seek approval for conducting forwards trading. Financial institutions given that approval will be qualified six months later to begin swaps business.
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