December 31, 2009, 12.15 pm (Singapore time)
China to reform yuan at its own pace: Safe
BEIJING - China will move ahead with yuan reform at its own pace, keeping a close eye on economic growth and the job market, a unit of the central bank said on Thursday.
The comments, which came in a report by the State Administration of Foreign Exchange (Safe), were the latest to display China's insistence that it will broach little interference from abroad in setting exchange rate policy.
'We should decide on the method, content and timing of yuan exchange rate reform according to our own needs and development,' Safe said in a report outlining how it manages the yuan.'Exchange rate reform must fully take into account the impact on macro-economic stability, economic growth and employment.'
The yuan was no longer pegged to the dollar and its exchange rate was set with reference to a basket of currencies, Safe said, repeating the wording it has used since lifting the currency from a formal dollar peg in 2005.
The controversy over China's exchange rate policy lies in the fact that, notwithstanding protestations to the contrary, the government has re-established a de facto dollar peg.
The central bank has kept the yuan in a tight range near 6.83 to the dollar since the global financial crisis worsened in mid-2008. Tracking dollar weakness, the yuan has fallen against most other currencies even as the Chinese economy has surged back to strong growth.
Sebastien Barbe, a strategist at Calyon in Hong Kong, said the discussion of a basket could be Safe's way of preparing the ground for a return to the gradual path of yuan appreciation followed from mid-2005 to mid-2008.
'These comments highlight two things: one, more and more Chinese policymakers are coming around to the idea of more appreciation, and two, these comments are a way of gauging market response to more yuan appreciation,' he said.
Many analysts believe that Chinese leaders will want to see several consecutive months of increasing exports before letting the yuan strengthen. The market expects about 2.6 per cent appreciation for the yuan over the next 12 months, according to offshore forwards pricing.
Safe promised more of the same in its outlook for the yuan.
'We will gradually push forward yuan exchange rate reform and establish a manageable floating exchange rate mechanism based on market supply and demand relations,' it said. 'We will maintain the yuan exchange rate basically stable within a reasonable and balanced level.' -- REUTERS
China to reform yuan at its own pace: Safe
BEIJING - China will move ahead with yuan reform at its own pace, keeping a close eye on economic growth and the job market, a unit of the central bank said on Thursday.
The comments, which came in a report by the State Administration of Foreign Exchange (Safe), were the latest to display China's insistence that it will broach little interference from abroad in setting exchange rate policy.
'We should decide on the method, content and timing of yuan exchange rate reform according to our own needs and development,' Safe said in a report outlining how it manages the yuan.'Exchange rate reform must fully take into account the impact on macro-economic stability, economic growth and employment.'
The yuan was no longer pegged to the dollar and its exchange rate was set with reference to a basket of currencies, Safe said, repeating the wording it has used since lifting the currency from a formal dollar peg in 2005.
The controversy over China's exchange rate policy lies in the fact that, notwithstanding protestations to the contrary, the government has re-established a de facto dollar peg.
The central bank has kept the yuan in a tight range near 6.83 to the dollar since the global financial crisis worsened in mid-2008. Tracking dollar weakness, the yuan has fallen against most other currencies even as the Chinese economy has surged back to strong growth.
Sebastien Barbe, a strategist at Calyon in Hong Kong, said the discussion of a basket could be Safe's way of preparing the ground for a return to the gradual path of yuan appreciation followed from mid-2005 to mid-2008.
'These comments highlight two things: one, more and more Chinese policymakers are coming around to the idea of more appreciation, and two, these comments are a way of gauging market response to more yuan appreciation,' he said.
Many analysts believe that Chinese leaders will want to see several consecutive months of increasing exports before letting the yuan strengthen. The market expects about 2.6 per cent appreciation for the yuan over the next 12 months, according to offshore forwards pricing.
Safe promised more of the same in its outlook for the yuan.
'We will gradually push forward yuan exchange rate reform and establish a manageable floating exchange rate mechanism based on market supply and demand relations,' it said. 'We will maintain the yuan exchange rate basically stable within a reasonable and balanced level.' -- REUTERS