At 19:00 on July 21, 2005, the People's Bank of China (PBoC) announced a revaluation of the Chinese currency Renminbi (RMB) or yuan, which immediately jolted international finance markets. PBoC said, the RMB yuan will no longer be pegged to the US dollar, and at the same time it will be traded at a rate of 8.11 for the US dollar.
How to view the reform of RMB exchange rate this time, and what impact will it bring on China's economy? Reporter with Beijing Times interviewed some economists.
Unexpected but right
The timing of the exchange rate reform this time was indeed unexpected, but totally reasonable. It is a good game of time, said Dr. Gao Huiqing with the Department of Strategy & Development of the State Information Center.
In the light of the current domestic and international economic contexts, the opportunity for the reform of the RMB exchange rate is extremely valuable. Gao analyzed that internally, China is in a relatively critical and sensitive period in its economy and attention has been generally drawn to its future development with not much paid to the RMB exchange rate reform. It is widely agreed that it is impossible for China to make adjustment on its currency at this moment.
Internationally, recently the sustained strength of the US dollar to some extent has reduced pressure on the yuan appreciation and some speculative capital has started to withdraw. Plus, predictions on yuan revaluation by some international finance institutions since May have turned out to be invalid, which also leaves the topic not so popular.
It is a wise timing, a quick move out of our expectations, said Gao.
Gao's view was echoed by He Fan, assistant to the director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences (CASS). He said, in the past couple of years, China has been under continued pressure from the outside world, which puts it into a dilemma as to when to adjust the RMB exchange rate. If the Chinese government did it, then it would just fit the wishes of international speculators; but if it did not , it would increase the difficulty for the country to make financial regulations.
The reform is of reason and it is what should be done as the conditions are ripe, but such a timing is totally rarely seen.
Spokesman of the PBoC also said that the present moment is a good opportunity to improve the rate-forming mechanism of RMB. Currently, China has been strengthening the construction of its foreign exchange market and its national economy also maintains a steady, rapid growth. On the other hand,