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PBOC: Yuan rates already market regulating
www.chinanews.cn 2005-07-31 17:06:04
(Source: China Daily)
July 31 - The People's Bank of China, the central bank, said the yuan
exchange rate is now made floating according to market forces, ruling out
any more government-decreed revaluation of its currency, also called
Renminbi.
Since its 2.1 per cent appreciation of the yuan announced on July 21,
there are growing expectations in the Western world that further
revaluations will follow, triggering increasing speculative fund inflows.
Some critics in Washington have also called for a much more substantial
rise of the Renminbi against the US dollar.
"Some foreign people have tried to create misunderstanding by saying the
adjustment is an initial move and there will be more to come," the bank
said in a statement, adding that such foreigners had come up with such
explanation "to suit their own purposes". In fact, the bank said, the
renminbi rate was being set "according to objective rules".
"These movements will be created by the floating mechanism and there will
be no more official adjustments of the renminbi level," it said.
The central bank said that in trading since revaluation, the yuan had
been reflecting market forces and movements in international currency
exchange rates.
Renminbi non-deliverable forwards, an off-shore instrument used to bet on
the Chinese currency, suggest investors expect significant further
appreciation of the renminbi over the next 12 months, the Financial Times
reported.
The newspaper quoted Professor Michael Pettis of the Guanghua School of
Management at Peking University as saying market expectations might be
difficult to change, since pressure for revaluation had largely been
driven by trade imbalances and money supply concerns.
The central bank's new regime for rates formulation - a "managed float"
based on "market supply and demand with reference to a basket of
currencies" - means that the bank's claim that yuan rates will reflect
market movements must be taken on trust, the paper said.
Some analysts say the lack of clarity, including the details of the said
basket of currencies, is intentional, aimed at giving the bank more
flexibility in setting its new renminbi policy.
Earlier last week, Li Deshui, commissioner of the National Bureau of
Statistics who also sits at the central bank's policy research and making
commission, told reporters that the capital account won't be let open to
market speculation funds, and the yuan won't become fully convertible in
at least five years.
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