According to the China Foreign Exchange Trading System, the dollar/yuan central parity rate was set at its record low since the scrap of peg to dollar – 7.2775; down from 7.2996 previous recent record level.
Chinese government eliminated the yuan’s peg to the U.S. dollar and bound the national currency to trade-weighted basket of the world currencies on July 21, 2005. The yuan rate is freely determined by the currency exchange market inside the 0.5% band set by the People’s Bank of China.
The yuan showed a 7% gain last year against the weakening U.S. currency as the Chinese monetary policy has been tweaked to fight the record high inflation rate and to reduce the record high trade balance surplus. This year’s early appreciation was caused by the bad macroeconomic statistics coming out from the U.S. this week.
By the end of 2007 People’s Bank of China Governor pledged to maintain a liquidity control over the yuan and improve the currency exchange mechanism in 2008 to make yuan freer exchangeable currency, but at the same time to hold down the excess appreciation of the yuan.
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