21.07.2005

China scraps its tie to the dollar

The Peoples Bank of China has revalued the Renminbi’s rate against the dollar and announced that it will no longer peg it to the U.S. currency , instead it will tie it to a basket of currencies, against which it will allow the currency to fluctuate by plus or minus 0.3 percent. The bank will set the central rate each day and adjust it as “economic conditions dicate”. The move is seen as a first step towards eventually allowing it to float freely on the world markets.

The new Renminbi rate against the dollar revalues the currency by 2.1 percent, to 8.11 per U.S. dollar as of 19:00 Beijing time today. The US and European governments and companies have long complained that the exchange rate peg kept the Renminbi artificially low, making Chinese exports cheap. The sign of a change will please those who compete with Chinese producers or who sell in China. However the effect will also make raw materials that are priced in dollars.. such as oil and iron ore cheaper in Renminbi terms.