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China forex regulator says 'no need to fear' floating yuan

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By Agence France-Presse, Updated: 5/17/2011
China forex regulator says 'no need to fear' floating yuan
China has "no need to fear" allowing its yuan currency exchange rate to float freely, a senior foreign exchange regulator said Tuesday.

China should improve its exchange rate regime by making the yuan more flexible and "letting the market play a bigger role", said Guan Tao, head of the international payment arm of the State Administration of Foreign Exchange.

"Flotation is not equal to one-way appreciation of renminbi," Guan said, referring to the currency by its official name, in an article posted on the website of China Finance 40 Forum, an independent think tank.

"We have no need to fear a floating exchange rate. Flotation will help form a two-way fluctuation and curb one-way speculation," he said in an analysis piece about Japan's stagnant economy.

Guan joins a chorus of officials and academics, both in China and abroad, who say speeding up appreciation of the yuan is in the interests of the world's second largest economy.

China is increasingly aware that it must allow its currency to appreciate more quickly if it wants to tame inflation, Anoop Singh, the head of the International Monetary Fund's Asia and Pacific department, said last week.

Guan said a hesitance among Japanese regulators to loosen restrictions on its rigid exchange rate regime in the 1970s was partially to blame for asset bubbles and Japan's recession in the 1990's.

He noted China was accumulating new foreign exchange reserves of more than 400 billion dollars a year due to its trade surplus and capital inflows, making its international payment imbalance more serious than Japan's was then.

China saw its foreign exchange reserves, already the world's biggest, rise to $3.05 trillion at the end of March.

The United States had accused China of undervaluing the yuan to keep the price of manufactured goods for export artificially low. But China has let the yuan rise against the dollar as it copes with high inflation at home.

China decided in June 2010 to ease its monetary policy, after two years of the yuan staying steady against the dollar.

Since then, the yuan has gained around five percent in value against the greenback, but has declined over six percent against the euro.

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