Tue, Mar 01, 2005 - Page 11 News List

Think tank suggests wider trading band for the yuan

AFP , BEIJING

A leading state-run think tank has proposed widening the Chinese yuan's trading band to 5 percent to ease pressure on the currency and allow greater leeway in reforming the exchange-rate mechanism.

The State Information Center (SIC) said the appreciation of the yuan was inevitable and the key issue was when and how to carry it out, according to its latest research report published in the China Business Post yesterday.

After a widening, the government would need to gradually introduce more flexibility, it said, suggesting the yuan could be pegged against a basket of currencies instead of just the US dollar.

The SIC is a research institute under the National Development and Reform Commission, China's economic development planner.

It said it expects the yuan exchange rate to appreciate 3 to 5 percent this year, which suggests a widening of the current narrow trading band that effectively pegs the yuan to the US dollar at 8.28.

A report on Saturday said China was taking measures to gradually open its capital account this year in a step towards making its currency fully convertible.

"In 2005, we will gradually ease the limit on the amount of [yuan] that can be exchanged under the capital account, another step in making the [yuan] fully convertible," Guo Shuqing (郭樹清), head of the State Administration of Foreign Exchange, was quoted as saying.

The central bank is also expected to raise the deposit reserve ratio for commercial banks by 0.5 to 1.0 percentage, the SIC said.

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