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China quashes rumors about yuan peg

"[Appreciation of the yuan] is definitely impossible. That's only what foreigners have been saying and only some individuals at that. Can you really take that seriously?"

Zhou Xiaochuan, governor of China's central bank

China's central bank governor Zhou Xiaochuan (周小川) said yesterday there will be no revaluation of the yuan when the country expands its foreign exchange trading system next week, quashing media speculation.

"Media reports on the expected appreciation of the Chinese currency, renminbi [the yuan], on May 18 are not correct," Zhou was quoted as saying by the official Xinhua news agency.

"That is definitely impossible. That's only what foreigners have been saying and only some individuals at that. Can you really take that seriously?" he said.

Under a previously announced plan, more currencies will be added to China's forex trading system next Wednesday, sparking speculation that the People's Bank of China could use the occasion to revalue or widen the yuan's trading band.

Trading will be broadened to introduce eight new currency pairs, including the US dollar against the Hong Kong dollar, Japanese yen, British pound, Swiss franc, Australian dollar, Canadian dollar and the euro, and the euro against the yen.

Earlier this week billions of dollars of speculative money was let loose on forex markets worldwide after confused reports -- forcefully rejected by the central bank -- that China would revalue the currency on May 18 at the time of the change.

Beijing is under fierce pressure to float the yuan. Legislation pending in the US Congress would impose a 27.5 percent tariff across the board on Chinese imports if the peg does not go within six months.

The yuan is currently fixed at about 8.28 to the US dollar, a level that many of the country's foreign trade partners argue is artificially low and unfairly boosts exports.

Although Beijing has repeatedly assured the international community that it is preparing to move toward a more flexible currency regime, it has steadfastly refused to reveal a timetable.

"The pressure may not be the most important problem. The key point is to follow our own logic of reform to design the starting point, the goal and the sequence of the reform," Zhou said.

Analysts argue that Beijing must revalue its currency to soothe foreign concerns and jittery international markets and as such a change to the system would have to come in the next few weeks.

"Chinese authorities, if they are waiting for a calm moment, they are not going to get it," said Tim Condon, an economist at ING.

"Most traders feel that revaluation is more likely sooner rather than later and I'm in that camp, with a revaluation coming sometime before the end of June," Condon said.

In Washington on Thursday, the International Monetary Fund (IMF) made clear it too felt China was ready and able to reform its currency system.

"I can only repeat all we have indicated for some time. A flexible exchange rate arrangement would be in China's interest," IMF spokesman Thomas Dawson told reporters.
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