Sat, Sep 24, 2005 - Page 1 News List

China widens its currency's trading band with euro, yen

AFP, Beijing

China's central bank yesterday widened the yuan's trading band in its new currency basket on the eve of the G7 meeting in a move seen as deflecting US criticism that it is footdragging on currency reform.

"Non-dollar denominated currencies will be allowed to fluctuate within a 3.0 percent range either side, compared with the original 1.5 percent," the People's Bank of China said in a statement.

The adjustment allows for the yuan to fluctuate against non-dollar currencies such as the euro and the yen by three percent either side of the midpoint but maintains the yuan-dollar band unchanged at 0.3 percent.

The tweaking comes as the Group of Seven was to meet yesterday in Washington, where US Treasury Secretary John Snow is scheduled to hold bilateral talks with Chinese Finance Minister Jin Renqing (金人慶) and central bank governor Zhou Xiaochuan (周小川).

Snow is widely expected to press China for further currency reforms.

The central bank said the move was aimed at heading off speculators, with a widening of the band likely to increase transaction costs for them, and to help maintain a more stable yuan exchange rate.

It also reiterated its commitment to maintaining a stable yuan at a reasonable and balanced level but pledged to move towards a more flexible exchange rate.

While the move is seen as a necessary one, giving China's new currency basket system greater flexibility, the action was unlikely to appease US concerns that the currency needs to strengthen further.

"The US will welcome China's move but then say let's hope you can do more in the future," said Qu Hongbin (屈宏斌), a China economist at HSBC in Hong Kong.

"There is a need to make this move so that it would prepare the system to cope with major US dollar fluctuations in the market," said Qu.

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