The European Commission backed China's policy of switching to a more flexible exchange-rate system at its own pace, rebuffing US calls for faster steps to boost the yuan, according to a confidential document.
The commission warned that sudden moves to strengthen the yuan as demanded by some US officials could further weaken the US dollar against the euro.
"China should introduce greater exchange-rate flexibility in a gradual manner," according to a document obtained by Bloomberg News. A gradual move would lessen the risk of the dollar, euro and Japanese yen "overshooting" on the markets.
The US is pushing for a more flexible exchange-rate system to boost US exports and erode the US trade gap with China, which reached a record US$201.6 billion last year.
US officials complain that China keeps the yuan artificially depressed so Chinese products are cheap in the marketplace.
The yuan has appreciated 1 percent against the US dollar since China on July 21 replaced a decade-long peg to the dollar with a basket of currencies and let its exchange rate rise 2.1 percent immediately.
"An abrupt de-pegging of the renminbi, and possibly other Asian currencies, from the dollar could give rise to a sudden reversal of Asian capital flows into the US, which might risk an excessive additional downward movement of the dollar against the euro," said the commission document, which was prepared for an April 6 meeting of European finance ministers in Vienna.
Finance chiefs from Asian countries including China and Japan will meet the EU ministers on April 7 and 8.
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