China has announced the four major currencies in the trade-weighted basket used to manage the renminbi (yuan), following its decision in late July to end its decade-old peg to the US dollar and introduce a managed float.
The currencies - the US dollar, the euro, the Japanese yen and the Korean won - were chosen because they represent the economies of China's four largest trading partners, said Zhou Xiaochuan, governor of the People's Bank of China, the central bank.
Mr Zhou did not reveal the weightings of the currencies in the basket.
Analysts differed about the weight allocated to the US dollar, with estimates ranging from 30 to 70 per cent.
Other currencies in the basket but with smaller weightings include the Canadian, Australian and Singapore dollars, Thai baht, British pound and Malaysian ringgit.
These are also currencies of significant trading partners for China.
Mr Zhou's announcement yesterday in Shanghai, where the central bank is upgrading its office to improve oversight of the city's expanding finance industry, coincided with the release of reforms to deepen China's foreign exchange markets.
Stephen Green, of Standard Chartered Bank in Shanghai, said the expansion of trading would not result in an immediate increase in currency volatility.
Since China abandoned the peg and revalued the renminbi by 2.1 per cent, the currency has fluctuated marginally in daily trading.
It closed slightly stronger yesterday at Rmb8.10 to one US dollar, compared with the Rmb8.11 rate announced on July 21st.
Michael Pettis, who teaches finance at Peking University, said: "The fact the renminbi has not moved [in recent weeks], whereas these other currencies have, tells us that there is not a strict peg to the new basket."
Economists believe the Chinese move will eventually result in the renminbi appreciating, which will make China's exports less competitive.
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