China will begin trading eight new foreign currency pairs Wednesday, announced China's central bank Tuesday in Beijing.

According to the central bank, the expansion of the forex trading system will not involve Chinese currency, renminbi, or yuan. Seven currencies will be paired against the US dollar beginning Wednesday: the euro, Australian dollar, British pound, Japanese yen, Canadian dollar, Swiss franc and Hong Kong dollar. The eighth new set will pair the euro against the Japanese yen.

At present, the yuan is paired in trading with four currencies: the US dollar, the Hong Kong dollar, Japanese yen and euro.

The expansion of the system has earlier raised intense speculation on whether China will appreciate the yuan on the same day. But the central bank Governor Zhou Xiaochuan last Friday denied the overseas media reports about the RMB appreciation. Chinese Premier Wen Jiabao stressed Monday that China will never yield to outside pressure on RMB exchange rate regime.

Those overseas research institutions predicted the yuan's appreciation on May 18 due to inadequate knowledge about China's forex trading system expansion, said an unnamed official with the central bank.

The expansion of foreign exchange trading system will improve the forex market among Chinese banks, said the official.

The official did not mention the connection between the forex trading system expansion and the reform of RMB exchange rate regime.

But Li Yang, director of the Institute of Finance of the Chinese Academy of Social Sciences, said that an effective forex market will be the prerequisite for the reform of RMB exchange rate regime.

Currently, the yuan is pegged to the US dollar at a stable rate of about 8.27 to 1. China has maintained a unified, 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 to 1997. When the financial crisis swept Asia in 1997, China insisted on not devaluing its currency and kept the RMB exchange rate stable in a responsible manner, and narrowed the floating scope of the RMB exchange rate since then.

With the devaluation of the US dollar in recent years, the RMB exchange rate against other major currencies was dropping actually, which some foreigners claimed as a measure by the Chinese government to stimulate its soaring export.

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 said on several occasions that there is no timetable for the exchange rate reform, and it is a complicated job and should be done step by step.

"When we're to reform the exchange rate regime, we should take into full consideration the macro-economic climate, the bearing capacity of the country's financial system, the performance of the financial market and the impact on regional and global economies," Guo said.

Source: Xinhua