Wed, May 18, 2005 - Page 11 News List

Forex reform not related to the yuan, officials say


China's slated launch today of new foreign currency pairs for onshore trading will help deepen its foreign exchange market, but it does not indicate an imminent yuan revaluation, officials and analysts said.

"Including more currencies in trading is clearly one preparation for China to liberalize its currency regime, but the move itself does not mean that it's directly and immediately related to China's plans ... The timing [of the new pairs] itself may not necessarily be that relevant," said Dong Tao, chief economist at Credit Suisse First Boston.

For its part, China's central bank has repeatedly said it will not revalue the yuan, which is pegged at about 8.28 to the US dollar, when it expands foreign exchange trading today.

Late Monday, Chinese Premier Wen Jiabao (溫家寶) reiterated the nation's position.

"The renminbi's [yuan's] foreign exchange rate reform is the sovereignty of China," Wen said in remarks carried by the official Xinhua news agency.

"We respect the order of the market economy, but do not succumb to outside pressure. Any pressure or speculation or politicizing economic issues is not helpful to resolving the problem," Wen said.

Four yuan pairs are now traded in China -- against the US dollar, Japanese yen, Hong Kong dollar and the euro.

The new pairs will be the US dollar against the Hong Kong dollar, the yen, the British pound, the Swiss franc, the Australian dollar, the Canadian dollar and the euro, plus the euro against the yen.

Shanghai's China Foreign Exchange Trade System (CFETS) has also brought in market makers to help deepen and expand trade.

These include seven major foreign banks -- Deutsche Bank, HSBC, ABN Amro, Royal Bank of Scotland, Citibank, Bank of Montreal and ING -- as well as two domestic institutions, Bank of China and CITIC Industrial Bank.

"Allowing market makers besides the central bank, and increasing the number of tradeable currency pairs, will give market participants, the private sector, more of a role in China's forex market, laying the groundwork for an eventual move to a more flexible exchange rate," said Rob Subbaraman, economist with Lehman Brothers in Tokyo.

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