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The end of 2004 witnessed for the first time the breakthrough of USD 1 trillion for the total import and export value in China's foreign trade with the influx of foreign capitals to have reached USD 60 billion and a foreign exchange reserve of USD 609.9 billion and the exchange rate of the people's currency continuing to remain stable. The international balance of payment continued to be in the surplus. This has offered us a favorable opportunity for further deepening the reform of the system for foreign exchanges, improving the forming of exchange rate mechanism for the people¡¯s currency and pushing forward the progress of the convertibility of the people's currency.

January 1, 1994 saw an important step forward in the reform of the system for foreign exchanges in China, i.e. to merge into one of the exchange rate of the people's currency, setting up on the basis of market supply a unitary, managed floating exchange rate system and implementing for Chinese enterprises a settlement and selling system of foreign exchanges. In July 1996, the buying and selling of foreign exchanges for foreign owned enterprises in China was taken into the bank settlement and selling system. As from 1 December 1996 onwards the people's currency under the current account was made convertible. To counter the impact of Asian financial crisis China adopted the counter-measures of no depreciation of the people's currency and accordingly with a narrow fluctuation of the exchange rate ever since 1997. To keep a basically stable exchange rate has helped promoting the development of the foreign trade, encouraged the foreign investment in China and provided a forceful support to the operation of stable currency policy. The managed system for floating foreign exchange rate caters to the conditions in China, expressed Guo Shuqing, vice-governor of the People's Bank of China and concurrently director-general of the State Administration of Foreign Exchanges, and so the system should be kept unchanged for a long time to come. However, there are still some shortages in the exchange rate of the people's currency now in practice

To improve the mechanism for the forming of exchange rate of the people's currency is ultimately for speeding up the reform of its marketization, giving play to the basic role of the market disposition of the resources of foreign exchanges to a greater extent. The existing foreign exchange market in China is still limited and incomplete with the market main-body limited to the designated banks for foreign exchanges with the trading currencies restricted to US dollar, Euro-dollar, HK dollar and Japanese yen and the trading of the US dollar taking up about 98 percent of the total trade. Since the outbreak of Asian financial crisis the fluctuation of the exchange rate for the people's currency has been narrowed up with the business transactions between banks and clients greatly restricted and a smaller scale in market trade and so it is unable to indicate a true supply and demand relation of foreign exchanges.

To push ahead the reform of the forming of mechanism for foreign exchange rate, the key lies in an active cultivation and development of the foreign exchange market and widening the market basis for the forming of the mechanism. It is necessary to carry on the reform of the foreign exchange settlement and selling system, making it to turn from a compulsory to voluntary settlement so as to expand the right of enterprises to manage their own affairs and loosen the restriction on the accession into the market, increase main-bodies in market trade and give permission to non-financial bodies, large enterprises to enter gradually and directly into the banking businesses and take part in the market trade and release the needs of financial bodies, enterprises and individuals for foreign exchange investment. To improve the way of the trading and try to introduce a business dealer system with permission given to the banks with enough strength to display their own superiorities to provide the market with enough flexibility so as to vitalize the trade in the market. To foster the intermediaries of foreign exchange dealers and brokerages to form a matrix of a pluralized trade market so as to enhance the market efficiency. Great efforts must be made to create new products, develop tools for keeping away with financial risks and expand long-term settlement and selling banking business with researches made for by-products of the change-over, future and option of the people's currency as with foreign exchanges, thereby making the market to meet the market needs for series of financial services by providing the participators with inflation-proof arbitrage, keeping away with risks and investment management.

It is believed that if the foreign exchange market is truly mobilized into action the market basis for the forming of the exchange rate of the people's currency is achieved without much effort.