Related Event: RMB Revaluation

China's central bank governor said on Friday that recent trading in the yuan after last week’s revaluation showed the currency reflected supply and demand as well as moves in other currencies.

Last week the People's Bank of China revalued the yuan, also called the renminbi, by 2.1 percent, setting its value at 8.11 against the dollar and saying the exchange rate would be set with reference to a currency basket.

"The renminbi has begun normal floating, reflecting market supply and demand and changes in the exchange rates of major currencies in international markets," Zhou Xiaochuan said in a statement on the central bank's Web site (www.pbc.gov.cn).

The narrow range of trading in the yuan over the past week has been a small fraction of the 0.3 percent allowed under the new regime, leading many analysts to believe that the central bank is not allowing market forces to play their full role.

But Zhou's remarks came shortly after the yuan closed at a post-revaluation high for the second straight session, extending tiny gains as the central bank stood by and gave the currency leeway to rise. The yuan closed at 8.1056 to the dollar.

A "floating mechanism", not official adjustments, would drive moves in the yuan, and yuan's exchange rate would fluctuate based on "objective rules", Zhou said. He also reiterated that an earlier statement of his describing the revaluation as an "initial adjustment", referred to the overall process of reforming the currency regime and did not indicate that further revaluations were planned.

(Photo souce: sina.com)