UPDATE: China Reveals Currency Basket For Yuan Peg
By Dow Jones
CHICAGO (Dow Jones) - China on Wednesday provided additional details on the currency basket it has adopted to replace the rigid decade-old dollar peg.
The primary currencies in the basket will be the U.S. dollar, euro, Japanese yen and Korean won, according to a statement on the People's Bank of China Web site.
But also featured are the currencies of some of China's other trading partners, Singapore, the U.K., Malaysia, Russia, Australia, Thailand, and Canada.
Central bank governor Zhou Xiaochuan made the following remarks:
"Current account is a major component of China's balance of payments, whereas trade in goods and services is the predominant item of current account. The current situation in China shows that trade in goods and services dominates current account balance. Therefore, the shares of trade are the major considerations in the determination of the currency components of the basket.
China's major trading partners are the United States, the Euro states, Japan, Korea, etc., and naturally, U.S. dollar, euro, Japanese yen and Korean won become major currencies of the basket.
In addition, China also trades significantly with Singapore, UK, Malaysia, Russia, Australia, Thailand, and Canada, currencies of these countries are also important in determining China's RMB [yuan] exchange rate.
Generally speaking, annual bilateral trade volume in excess of US$10 billion is not negligible in weight assignment, whereas that exceeding US$5 billion should also be considered as a significant factor in currency-weight deliberation.
When you look at currencies used in trade settlement, although some countries and regions prefer US dollar as the currency for trade settlement with China, this situation is changing gradually and trade settlement in local currencies are increasingly the choice of trading partners.
Moreover, we encourage this development.
Since the basket represents currencies of countries covering a significant share of China's external trade, the RMB exchange rate against a basket of currencies is therefore a better indicator of the value of RMB and the changes in China's terms of trade than that against the U.S. dollar, and consequently serves as an important reference in achieving basic trade balance in goods and services."
(END) Dow Jones Newswires August 10, 2005 10:26 ET (14:26 GMT)
