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China will begin trading eight new foreign currency pairs on Wednesday, announced China's central bank in Beijing Tuesday.
According to the central bank, the expansion of the forex trading system will not involve the Chinese renminbi (RMB) or yuan. The following seven currencies will be traded against the US dollar beginning Wednesday: the euro, Australian dollar, British pound, Japanese yen, Canadian dollar, Swiss franc and Hong Kong dollar. The eighth set will pair the euro with the Japanese yen.
At present, the yuan is paired in trading with four currencies: the US dollar, Hong Kong dollar, Japanese yen and euro.
The expansion of the system had earlier led to intense speculation on whether China would appreciate the yuan on the same day. But the central bank Governor Zhou Xiaochuan last Friday denied foreign media reports that alluded to this. Chinese Premier Wen Jiabao on Monday stressed that China will never yield to outside pressure for a change to the Chinese forex system.
The expansion of China's forex system will improve the market as between Chinese banks, said an unnamed official with the central bank.
Li Yang, director of the Institute of Finance of the Chinese Academy of Social Sciences, said that an effective forex market is the prerequisite for any reform of the RMB exchange rate regime.
The yuan is currently pegged to the US dollar at a rate of about RMB8.27 to USD1. China has maintained a unified and managed floating exchange rate regime based on supply and demand of foreign exchange in the market since 1994. The yuan appreciated 38 percent against the US dollar between 1994 and 1997. When the financial crisis hit Asia in 1997, China insisted on not devaluing its currency and kept its rate stable.
With the devaluation of the US dollar in recent years, the RMB exchange rate against other major currencies has also dropped, which some foreigners claim was as a measure by the Chinese government to stimulate its soaring exports market.
But China did not lower the yuan artificially to pursue its own interests, the country's former foreign exchange chief Guo Shuqing said recently.
Chinese leaders have also said on several occasions that there is no timetable for exchange rate reform. It is a complicated job and should be done step by step.
"When we reform the exchange rate regime, we should take into full consideration the macro-economic climate, the resilience of the country's financial system, the performance of the financial market, and the impact that any reform will have on regional and global economies," Guo said.
(Xinhua News Agency May 18, 2005)
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