China may let yuan appreciate+

BEIJING, June 19 Kyodo -
China's central bank said Saturday it has decided to let the exchange rate of
the yuan move more flexibly, suggesting it may let the currency start
appreciating albeit gradually.
''In view of the recent economic situation and financial market developments at
home and abroad, the balance of payments (BOP) situation in China, the People's
Bank of China has decided to proceed further with reform of the RMB exchange
rate regime and to enhance the RMB exchange rate flexibility,'' the central
bank said in a statement.
Although it said the exchange rate floating bands ''will remain the same as
previously announced in the inter-bank foreign exchange market,'' financial
analysts say the announcement suggests China is ready to change its dollar-peg
currency regime as early as next week.
China's move comes amid increasing pressure from some of China's main trading
partners, including the United States, ahead of the June 26 to 27 summit of the
Group of 20 developed and emerging economies in Toronto, Canada. The exchange
value of the yuan, also known as renminbi, or RMB, is expected to be high on
the agenda.
The Japanese and U.S. finance chiefs welcomed the decision.
''We hope (the decision) will contribute to stable and balanced growth of the
Chinese and the global economy,'' Japanese Finance Minister Yoshihiko Noda said
in a statement.
U.S. Treasury Secretary Timothy Geithner said, ''We welcome China's decision to
increase the flexibility of its exchange rate.''
''Vigorous implementation would make a positive contribution to strong and
balanced global growth. We look forward to continuing our work with China in
the G-20 and bilaterally to strengthen the recovery,'' Geithner said in a
statement.
International Monetary Fund Managing Director Dominique Strauss-Kahn said in a
statement separately the decision by China's central bank ''is a very welcomed
development.''
''A stronger renminbi is in line with findings of the G-20 Mutual Assessment
Process,'' which will be presented at the upcoming summit, Strauss-Kahn said.
The decision ''will help increase Chinese household income and provide the
incentives necessary to reorient investment toward industries that serve the
Chinese consumer,'' he added.
China is expected to retain the 0.5 percent daily band in which the yuan is
allowed to fluctuate against the dollar, analysts said.
U.S. President Barack Obama has indirectly urged China to promote currency
reform as part of balancing the U.S. trade deficit with the country in a letter
recently sent to his G-20 partners ahead of their summit. The letter was
released Friday by the White House.
Chinese President Hu Jintao wanted to make an appeal for China's efforts on the
issue, the analysts say.
In 2005, China started gradually appreciating the yuan against the dollar, but
the Chinese currency has been effectively pegged at 6.83 to the dollar since
the summer of 2008 to help support domestic exporters.
But international calls, including those from U.S. lawmakers, have grown
demanding that the yuan appreciate to better reflect China's growing economic
clout, as a weak yuan provides Chinese products with unfair advantage.
On Friday, Washington indicated that the Treasury Department plans to issue a
currency report to the Congress, which was initially due out on April 15 but
postponed by Geithner, warning China that the report could accuse China it
manipulates its currency.
In March, Zhou Xiaochuan, governor of the People's Bank of China, suggested the
possibility of revaluing the yuan, saying China has managed the yuan exchange
rate mechanism differently in the financial crisis period and the country may
''sooner or later'' consider an exit plan from those measures.
In China, there was persistent opposition to letting the yuan appreciate due to
concern the country's exporters would be hit by the move and that a higher yuan
could lead to massive short-term fund inflows and deepen worries over a bubble
in the country's economy, analysts said.
The latest central bank decision apparently reflects its view that implementing
currency reform is necessary due to increasing inflationary pressure and a
recovery in China's exports that began late last year, they said.
==Kyodo
2010-06-20 01:15:52


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