BEIJING, Sept.9 (Xinhuanet)--The central bank has the ability to hedge against the currency supply increase caused by "hot money" or speculative capital, noted recently Zhou Xiaochuan, governor of the People's Bank of China (PBOC). And in order to cope with the situation the central bank will resort to more such instruments as currency policy.

    The central bank has lately adjusted the rate of deposit reserve, a clear indication to show that China's central bank is now mulling over countermeasures and that speculation in Renminbi hatches a huge possibility of failure.

    It is perhaps too early to draw a conclusion whether Renminbi is devalued or revalued, therefore adjustments on this basis is even less reasonable, said Zhou Xiaochuan.

    Zhou Xiaochuan added that, in view of the present status of China's foreign exchange (hereinafter referred to as Forex) reserve, the country does not expect a fast increase in Forex reserve. In the 1990s China's Forex reserve was relatively small, which needed to be accumulated and recovered and then reached the balanced level with that for imports and foreign loans. Hit by Asia's financial crisis in 1997, Asian countries once again held a deliberation on "what is an appropriate level for Forex reserve", through which countries improved their understanding of "an appropriate level of Forex reserve". And now it is high time China put an end to the recovery growth in the Forex reserve, and there is no need for China to seek for an excessive growth of Forex reserve any more. With the continuous growth of China's imports and exports as well as the floating capital in future, the Forex reserve will well attain the reserve goal only if it can grow at a proper pace.

    Zhou Xiaochuan pointed out that the reform in forming an exchange rate mechanism constitutes a vital agenda in China's exchange rate reform. Generally speaking, the current exchange rate of Renminbi is based on the supply and demand in the marketplace, coupled with the macroeconomic control. As the market supply and demand fluctuate wildly, it is of high necessity to resort to macroeconomic control. When the market plays a more and more significant role and a decisive one at last an exchange rate with wild fluctuation will then be allowed.

    Zhou Xiaochuan revealed that the reform of exchange rate should go hand in hand with other reforms. And several tasks need to be completed prior to the realization of a fully convertible exchange rate. First, free trade management is comparatively in full and service trade is relatively opened up. Secondly, excessive control on capital projects is lifted. And thirdly, state-owned commercial banks at large have made strides forward in their respective reforms and basically solved major problems. (People's Daily)