Market performance
With 252 trade sessions in 2004, the interbank FX market concluded a record turnover of 209.04 billion in US dollar terms. The average daily turnover reached US$830 million, up 37.8 percent over the previous year.

Compared with 2003, the average daily turnover increased for the USD, HKD and JPY, while it decreased for the EUR.

In 2004, the USD fluctuated modestly. Opening the year at 8.2769, the weighted average price of USD fluctuated slightly, and reached a high of 8.2774. From October until the end of the year, it maintained a level of 8.2765, the lowest price of the year, two bps lower than the closing figure for 2003.

The HKD bottomed out in 2004. The weighted average price of HKD began the year at 1.0656. On January 18, the weighted average price of HKD slumped to 1.0615, but went up the next day, and then decreased slowly yet constantly. From October onwards, the HKD inched higher to end the year at 1.0641, 16 bps lower year-on-year.

The JPY fluctuated and rose. After opening the year at 7.7345, the weighted average price of JPY had a high of 8.0899 and low of 7.2253. It closed the year at 8.0573, 3,163 bps higher year-on-year.

The EUR decreased in value before rebounding. At the beginning of 2004, the weighted average price of EUR was 10.3951, and then decreased amidst fluctuation. During the second half of the year, affected by the increasingly strong USD/EUR exchange rate in the global market, the RMB / EUR exchange rate went up steadily in the domestic market and rose remarkably in the fourth quarter. It closed the year at 11.2588, the highest price of the year, and 8,552 bps higher than the price at the end of 2003.

As compared with 2003, average daily supply and demand both increased in the interbank FX market. The excess of supply over demand increased by US$47.47 billion year-on-year. The average daily surplus jumped by 37 percent over 2003.

The year 2004 witnessed 123 interbank foreign currency deposit deals, with an accumulative turnover of 2.38 billion in US dollar terms. This included US$2.33 billion, HK$225 million and 13 million. By the end of 2004, 126 institutions had signed agreements with the China Foreign Exchange Trade System (CFETS) for FX deposit intermediary services.

Analyses and forecast
The booming economy laid a solid foundation for FX market development. China's timely fifth macro-economic adjustment eased some of the main conflicts and problems in the country's economic operation. The sound performance of the global economy also provided a favorable external environment for China's economic growth.

The effectiveness of FX management and reform ensured the orderly development of the FX market. Responding to changes in FX supply and demand, the central bank entered the market timely, balancing supply and demand, and stabilizing the exchange rate, thus smoothing the performance of designated banks' FX purchase and sale business. Meanwhile, the FX administration made great efforts to respond to the new situation.

Various factors contributed to the increasing turnover on the FX market. On one hand, the sustained, stable economic growth was the fundamental engine for the rise of the turnover. On the other hand, the soaring turnover was also attributed to the increasing speculation on RMB appreciation.

The RMB exchange rate formation mechanism will be further explored. In 2005, China will actively and gradually advance reform of the RMB exchange rate forming mechanism and maintain the basic stability of the RMB exchange rate at an adaptive and equilibrium level. In 2005, in light of the PBC's objective of speeding up the FX market development, the interbank FX market will continue to be improved.