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China May Let Yuan Gain in 2 Months, Former U.S. Official Says

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China May Let Yuan Gain in 2 Months, Former U.S. Official Says
May 03, 2010, 2:08 AM EDT

May 3 (Bloomberg) -- China may let the yuan gain in the next two to three months as the government seeks to demonstrate progress on exchange-rate policy to its trading partners, said Frank Lavin, a former Under Secretary for International Trade at the U.S. Department of Commerce.

Chinese authorities may announce a currency policy change before the second U.S.-China Strategic and Economic Dialogue in May, said Lavin, who was also former U.S. ambassador to Singapore. Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Clinton will travel to Beijing on May 24-25 for the meeting, the U.S. Treasury Department said on April 26.

“We are going to see something from the Chinese side in the next few weeks because the bilateral meeting takes place in about two to three weeks,” Lavin said in an interview with Bloomberg Television in Shanghai today. “Before that happens, we will see a formal statement from Chinese that they are going to move, and the move will take place within 60 to 90 days.”

China’s central bank has kept selling local currency to prevent the yuan from strengthening since July 2008, flooding the financial system with cash and swelling foreign currency reserves, the world’s largest, to $2.45 trillion. The monetary authority yesterday raised banks’ reserve-requirement ratio for a third time this year, seeking to cool property prices.

The yuan’s 12-month non-deliverable forwards traded at 6.6164 per dollar as of 11:58 a.m. in Hong Kong, compared with 6.6131 on April 30, according to data compiled by Bloomberg. The contracts reflect bets the currency will strengthen 3.2 percent from the spot rate of 6.8252. Financial markets elsewhere in China were shut for a holiday today.

Consumer prices climbed 2.4 percent in March from a year earlier, after a 2.7 percent gain in February, the statistics bureau said April 15. China will pursue a “moderately easy” monetary policy and keep the yuan at a “stable” level to support economic growth, Finance Minister Xie Xuren said yesterday.

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