China raises renminbi value

China's currency jumped against the United States dollar on 27 November as the PBOC set its rate at Rnb 7.8402 per dollar, the highest level since the current exchange system was set up in July 2005. Traders suggested that the dollar's slide to a 19-month low against the euro last week may have helped trigger the US currency's slip against the renminbi.

One consequence of a declining dollar for central banks is large losses on the foreign exchange they hold. However major reserve holders like China are unlikely to be able to engage in large-scale reserve diversification.

Guan Tao, deputy head of the general affairs department of the State Administration of Foreign Exchange, which manages China's reserves, told an economic conference in Beijing that the size of the holdings of US dollars in the hands of just a few countries meant that "the possibility of a drastic fluctuation is relatively small".

He said, "Even if they have the intention of adjusting into non-US dollar assets, their adjustment [scope] is very limited".