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National

Chinese Renminbi Float

19 June 2010

China's central bank (Peoples Bank of China) announced on Saturday, 19 June
that it was removing the pegging of the Chinese currency to the US Dollar
effective Monday, 21 June 2010.

The statement signified a return to the managed floating arrangement against
an undisclosed basket of currencies which operated from 2005 - 2008.

Supporting explanations released by China's central bank said that greater 
exchange rate flexibility would help redirect resources from the export sector
to domestic demand, especially in the services sector.

"This will help promote employment and higher value added industries."

"However, stability is still of paramount importance in the new exchange rate
regime", China's central bank observed.

In a comment on the move, Julian Reeves of Morgan Stanley Smith Barnes
said the firm believed the American Dollar would remain centre stage in
determining the value of the Renminbi.

"How much the Renminbi appreciates against the American Dollar will be 
determined by the tolerance of policy-makers rather than the basket of 
currencies."

"Unless the Euro can stage a sustained, fast rebound versus the American 
Dollar, the Chinese currency's appreciation against the US Dollar will be a 
slow crawl."

"We maintain our view that the Renminbi can appreciate against the US
Dollar by nearly 2 per cent to 6.70 through to the end of the year, or by
nearly 3 per cent to 6.62 in one year." Julian Reeves said.

Reporting on the removal of the peg to the US Dollar and movement in the
value of the Chinese Yuan over the following seven days, eStandards Forum
said the modest appreciation of 0.5 per cent raised questions about whether
the announcement was simply designed to divert attention away from the
foreign currency regime in the lead up to the G20 Summit in Toronto where
the value of the Renminbi threatened to become a major issue.

News Agency Sources:   Xinhua News Agency - FT - Reuters

Other Sources: 

(a)   e-Standards Forum, 21-28 June 2010

(b)  Scoop (Morgan Stanley Smith Barnes), 21 June 2010