Feb. 19, 2008 (China Knowledge) - China seeks to achieve a stable trade-weighted effective exchange rate by managing the RMB exchange rate against its major trading partners' currencies, thus enabling more flexibility in appreciation, former central bank adviser Li Yang said.

The effective exchange rate will serve as a means to achieve currency strength for China. Major trading partners like Japan, European Union and the U.S. that constitute a larger portion of China's exports and imports, receive a higher index. The trade-weighted index is used to make a complete comparison between China's currency and other currencies it interacts with.

The RMB had fallen 6% against the euro since the RMB's peg to the U.S. dollar was scrapped in 2005, prompting calls from European officials including French President Nicholas Sarkozy to allow faster gains.

RMB appreciation against more currencies may slow down China's trade surplus growth, which is the cause of the current 11-year high inflation. GDP growth was 11.4% in 2007 from a year earlier, the fastest in 13 years, driven by exports and investment.

The RMB fell 0.6% against the dollar on the first trading day after a week-long holiday on February 13, tracking declines in the euro and the yen.

The currency rose 0.28% to RMB 7.16 per dollar at 5:30pm in Shanghai on Monday, the highest since the end of the dollar peg, according to the China Foreign Exchange Trade System (CFETS).