Central bank to gradually lessen forex role (Reuters) Updated: 2005-09-23 08:49
China's central bank will "gradually" lessen the degree to which it
intervenes in foreign exchange markets, but is not certain the country's yuan
currency is undervalued, a senior central bank official said in an interview
published on Thursday.
"Gradually the (People's Bank of China) will carry out fewer and fewer
interventions in the foreign exchange market and let the market decide," Hu
Xiaolian, deputy governor at the central bank, told the publication "Emerging
Markets."
"The frequency and level of such interventions will be gradually decreased,"
she said.
But Hu, who is also China's foreign exchange chief, added: "We think it's
still an open question as to whether the (yuan) exchange rate is undervalued."
In July, China ditched a decade-old policy of pegging the yuan to the U.S.
dollar, revalued it by 2.1 percent and moved instead to a managed float.
The move has been welcomed by the United States as a welcome first step
toward greater currency flexibility. But the United States, which has argued an
undervalued yuan gives China an unfair advantage in world markets, has said
further steps are needed.
The topic is expected to be on the table on Friday when officials from
China and fellow emerging markets Brazil, Russia, India and South Africa sit
down with central bankers and finance ministers from the rich Group of Seven
countries for a working luncheon ahead of a formal G7 gathering.
The G7 -- the United States, Britain, Canada, France, Germany, Italy and
Japan -- has called for greater currency flexibility in recent post-meeting
communiques and faces a delicate task in deciding how to treat the issue in the
wake of China's July 21 move.
The revaluation took the yuan from 8.28 to the dollar to 8.11. But the
currency has moved up only a further 0.27 percent in the two months since the
revaluation, a sign the central bank is keeping it on a tight leash.
"We can't expect the move will change the activity or strategy of the
(central bank) in the foreign-exchange market overnight," Hu told the
publication.
She said China still needed to take steps to ensure speculative inflows do
not destabilize the economy.
"We should first further develop our capital markets and other domestic
institutions, to better use our domestic market to finance business," she said.
"We have to implement all kinds of control on this hot money. We have to keep
our watch on capital inflows."
"We've repeated this many times: a stable exchange rate is in China's best
interest," Hu said.
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