Boosting confidence in the global economy, financial markets witnessed an upswing on Monday with the decision of People's Bank of China to end Chinese currency yuan's fixed rate to the U.S. dollar, prior to the Group of 20 Summit in Toronto.

Rupee closes below 46-mark

While yuan climbed to its highest level against the dollar since its last revaluation in July 2005, the Indian rupee rose to its highest in more than a month. The rupee ended at 45.7450/7550 a dollar, 0.9 per cent up as compared to last Friday's close of 46.16/17. It recorded a high of 45.58 in early trade, the highest since May 18. Europe's common currency, euro, touched its highest levels in about a month following China's move. The yuan closed at 6.7976 a dollar, up 0.42 per cent from Friday's close. In intra-day, it touched a high of 6.7958, a gain of 0.47 per cent. However, it fixed a daily trading band limit of 0.5 per cent; yuan is allowed to rise or fall 0.5 per cent against the dollar from the daily mid-point.

The People's Bank of China has decided to proceed further with reform of the RMB (yuan) exchange rate regime and to enhance the RMB exchange rate flexibility, in view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BoP) situation in China, the People's Bank of China said on Saturday.

Starting from July 21, 2005, China has moved into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. “When the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the U.S. dollar depreciated by varying margins. The stability of the RMB exchange rate has played an important role in mitigating the crisis' impact, contributing significantly to Asian and global recovery, and demonstrating China's efforts in promoting global rebalancing,” People's Bank of China claimed.

Gradual recovery

The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. “It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility,” it stated.

“The People's Bank of China will further enable market to play a fundamental role in resource allocation, promote a more balanced BoP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China,” it added.

The U.S. welcomed the Chinese move. “We welcome China's decision to increase the flexibility of its exchange rate,” said U.S. Treasury Secretary Timothy Geithner immediately after the Chinese decision.

Keywords: Forexrupeedollaryuan

More In: Markets | Business