China on Wednesday, hinted on Wednesday it may end the renminbi peg to the US dollar, which it has had in place since mid-2008.

Renminbi is Mandarin fro people's currency; yuan is Mandarin for unit.

In its third-quarter monetary policy report, the People's Bank of China departed from the standard language on keeping the yuan"basically stable at a reasonable and balanced level."

It is argued that China's currency is up to 40% undervalued to the US dollar and when the US currency falls, other Asian countries see their export prices rising while China's unnofficial fixed peg, leaves its exports immune from fx market changes.

In a report last month, the US Treasury said that of 17 currencies examined, two (the Saudi Arabia riyal and the Venezuelan bolivar) were fixed against the US dollar. Among the remaining 15 currencies, all except the Norwegian krone depreciated against the dollar in the first quarter of 2009, as capital flows to emerging markets declined and investors continued to shift their portfolios into dollar assets. During the second quarter of 2009, 14 of these currencies appreciated against the dollar, as improvements in financial market conditions and the global outlook led to a return to more diverse portfolios. Only the Chinese renminbi remained unchanged against the dollar in the second quarter.

Ahead of a visit to Beijing by US president Barack Obama, the People’s Bank of China said foreign exchange policy would take into account “capital flows and major currency movements,” a reference to the large speculative inflows of capital that China is receiving and US dollar weakness.

The International Monetary Fund said last weekend, that the renminbi, which was effectively re-pegged to the dollar in the middle of last year after being allowed to appreciate by about 20 per cent against the greenback since 2005, was “significantly undervalued.”

Last weekend, China's commerce minister Chen Deming, called for a stable exchange rate to “create stable expectations” for exporters.

In Tokyo on Wednesday Tim Geithner, US Treasury Secretary, supported a strong dollar but such statements are taken with a pinch of salt: “I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” he told the Japanese media.

Asian finance ministers, who are in Singapore this week, for a meeting of the 21-member Asia-Pacific Economic Cooperation forum, are expected to raise their concerns about both the dollar's fall and pegging of the Chinese currency.

Data from US investment bank Brown Brothers Harriman, shows that some of the largest emerging economies may have spent as much as $150 billion on currency intervention over the past two months.

Thailand has bought $15 billion trying to push the dollar higher against the baht, Korn Chatikavanij, Thailand's finance minister, said in an interview with Dow Jones Newswires.

"Quite clearly, all Asian central banks have found it necessary to intervene, and it's costing us,"Korn said.

"I'm convinced that in the long term the dollar is more likely than not to decline in value, so we're building up assets that are declining in value over time," Korn added. "That's not healthy."

SEE: Finfacts article Oct 16, 2009: US refrains from calling China currency manipulator; Economist says reduction in dollar role would help America's economy