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China stays cautious on its currency

China is not planning more abrupt changes to the yuan, a senior People's Bank of China official said, squelching speculation over further currency revaluations ahead of a meeting of top international finance officials later this week in China.

Following a 2 percent revaluation on July 21 that raised the yuan's level to 8.11 to the US dollar from the previous exchange rate of 8.27, further adjustments will be depend on the yuan's movement in the currency market, state media cited the official as saying yesterday.

The yuan's value surged to a 8.0965 closing against the US dollar on Friday, its highest level since July 21, amid speculation that a visit to the US by Chinese President Hu Jintao (胡錦濤) early next month might prompt another revaluation.

"Right now we often hear corporates or all sorts of people all asking when is the next time the foreign exchange rate will be adjusted again," Ma Delun (馬德倫), an assistant to the People's Bank of China governor, was quoted as saying by the newspaper China Business News.

"I'd like to tell everyone, the next change in the [yuan exchange rate level] is happening everyday, every hour it is going on," Ma said in a speech given over the weekend at a conference in Shenzhen.

"The next adjustment will come in the foreign-exchange market," Ma said.

The July 21 revaluation also cut the yuan's decade-old peg to the US dollar, linking it instead to a basket of currencies of China's main trading partners, including the US, Japan, the EU and South Korea.

But China still limits trading in the yuan and confines daily movements in the foreign-exchange market within a 0.3 percent range of its opening level. Since July 21, the yuan has appreciated by less than 0.2 percent against the dollar.

The central bank's goal is to maintain stability, Ma added.

Adjustments in China's foreign exchange policy will eventually give the market a much stronger sway over the yuan's value, though they may at first be perceived as slow, the Financial Times quoted central bank governor Zhou Xiaochuan (周小川) as saying.

Though the yuan's movement might seem small, "the important thing is that it has started to float and over time market forces will play a more and more important role," Zhou was quoted as saying.

Zhou said the central bank wants the yuan to move gradually to allow Chinese companies to adapt to the new trading system and to become familiar with financial instruments, such as forwards, used to hedge exchange-rate risks.

The comments came as top finance officials from the so-called Group of 20 developing and industrialized nations prepared to meet on Thursday in the northeastern city of Dalian. China this year assumed the presidency of the G20, a group created in 1999 with the aim of reforming the global financial system to make financial crises less likely.

Newly appointed US Treasury Secretary for International Affairs Timothy Adams, who will attend the Dalian meeting, was expected to reiterate Washington's position.
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