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Speculation mounts over China currency move

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1 Speculation mounts over China currency move on Fri Apr 09, 2010 10:29 pm


Speculation mounts over China currency move
AFP April 10, 2010, 2:00 am

BEIJING (AFP) - Speculation was mounting Friday that China was preparing to alter its exchange rate policy and allow for the yuan to appreciate, after US Treasury Secretary Timothy Geithner's visit to Beijing.

Senior policymakers in China have been sending out signals in recent weeks that Beijing may consider widening the trading band set for the yuan in 2008 in the face of the global economic crisis.

The United States and China's other key trading partners have been piling pressure on Beijing to allow the yuan to appreciate, saying it is undervalued and gives the Asian nation an unfair advantage by making its exports cheaper.

Geithner made a hastily arranged trip to Beijing on Thursday for a meeting with Chinese Vice Premier Wang Qishan, the cabinet official in charge of economic and financial issues in the world's third largest economy.

The two sides issued nearly identical brief statements after the talks, saying they had discussed economic relations and the global financial situation, but neither country specifically mentioned the Chinese currency.

However, an unnamed US official told The Wall Street Journal that the issue had indeed been discussed and qualified the talks as "constructive".

The official said the US side, while not expecting a specific pledge of action from Beijing given its concerns not to be seen as bowing to US pressure, was encouraged that China would soon take action, the Journal said.

But the official emphasised that no breakthroughs were reached.

The dispute over the yuan has added to the chill in ties between the United States and China over a host of other issues including Tibet, Taiwan, trade, human rights and Internet freedom.

Xia Bin, an adviser to the cabinet and the central bank, on Thursday signalled a possible policy shift, saying China should return to the pre-crisis managed float system now that the worst of the economic downturn was over.

But he cautioned there would be no major moves.

"If the renminbi were to appreciate drastically within a short period of time, what would be the benefit for the United States or for China?" Xia said.

The yuan has been effectively pegged at about 6.8 to the dollar in mid-2008 after rising by more than 20 percent since 2005 as China's export-driven economy soared.

Ba Shusong, an economist working for the cabinet's think tank, said this week that while a widening of the band was a possibility, the timing still depended on the pace of economic recovery in China and the United States.

Chinese foreign ministry spokeswoman Jiang Yu has also said that Beijing would continue to adapt its exchange rate regime in a "proactive and gradual manner".

A stronger currency would make Chinese exports more expensive, but would help boost consumer spending by reducing the cost of imported products.

"It seems increasingly likely that a shift will take place sometime soon ... with an initial move now expected within the next few weeks or even days," RBC Capital Markets said in a research note.

Researchers at Citigroup said they expect an appreciation of the yuan in the second quarter of the year -- calling a widening of the narrow trading band "likely".

Last month, China's central bank governor Zhou Xiaochuan said that Beijing's currency policy was temporary and would be withdrawn "sooner or later" along with other measures to tackle the crisis.

Lawmakers in the United States, which has a massive trade deficit with China, had been pushing the US Treasury to label Beijing a "currency manipulator" -- a move that would open the door to sanctions.

But the Treasury announced the delay of a report due this month which could have slapped China with the "manipulator" tag, with Geithner saying there were better ways to advance US interests.

US President Barack Obama, who is due to meeting his Chinese counterpart Hu Jintao in Washington on Monday, last month called on Beijing to embrace a "market-oriented" exchange rate for the yuan.

But in a reminder that any policy shift was likely to be modest, the China Daily said in an editorial that a fast rise in the value of the currency was not in the interests of China or the world.
"A rapid appreciation of the Chinese currency will not only cause a loss in the value of China's foreign exchange reserves but also incur undesirable fluctuations in the global commodities markets," it said.


Just like a YOYO! here we go again are we going up or down??? bounce

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