Composition of currency basket revealed
By Dai Yan in Shanghai and Vincent Lam in Hong Kong (China Daily)
Updated: 2005-08-11 06:04

It also announced that a basket of currencies would determine the exchange rate of the renminbi.

Coins of RMB50 cent are displayed in this picture taken on August 10, 2005. [newsphoto]

The yuan gained 2 per cent against the US dollar, and has appreciated slightly since it was revalued to 8.11 per US dollar. The currency closed at 8.1062 per US dollar yesterday.

Raymond So, an associate professor in the Department of Finance at the Chinese University of Hong Kong, applauded the disclosure of constituent currencies in the basket.

"It is a tactical move by the central bank to track the yuan with the US dollar, the euro, the yen and the currencies of smaller trading partners."

The euro and the yen are moving in a direction virtually opposite to the dollar, so that could provide a hedge against wide fluctuations in the foreign currency market, So noted.

"More importantly, the disclosure of the currency package could ease the pressure from China's trading partners on further revaluation of the yuan as the interests of the United States, the European Union and Japan will be divergent."

Chan Bo-ming, senior economist at DBS (Hong Kong), also welcomed the disclosure but added: "The currencies included in the basket have been anticipated by the market so the disclosure would have almost no impact on the yuan. It will also ease US pressure on China's monetary policy."

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