Related: RMB may gain 7% by end-2005: JPMorgan Chase

         Yuan inaction raises dollar's appeal

 

RMB, or yuan, has been pegged to the dollar at the rate of 8.28 since June 1995. (AFP photo)

    BEIJING, May 10 -- China is negotiating its currency exchange rate system with the United States, which claims China has now made "sufficient progress" to introduce exchange rate flexibility.

    According to Marketwatch, U.S. Treasury spokesman Tony Fratto said Monday that Chinese and U.S. financial officials discussed exchange rate policies, central bank open market activities and other subjects for about two and a half hours.

    He said they may meet again as soon as this summer in Beijing to discuss non-performing loans in Chinese banks.

    U.S. officials, including Treasury Secretary John Snow, have been saying for more than a month that China is ready to take the next step toward an exchange rate that's determined by market forces, rather than controlled by the central bank.

    However, Fratto said he would not speculate about when China would move to revalue the yuan.

    China has pegged the yuan to the dollar at the rate of 8.28 since June 1995.

    The country's top financial officials have insisted that Beijing will only change its foreign exchange regime once its banking system, secondary financial sector and regulatory muscle are deemed strong enough to cope.

    "I feel the pressure is not from the outside rather from domestic needs, and establishing market mechanisms and financial sector reforms are prerequisites for floating RMB", vice financial minister Li Ruoguo said at the 38th annual meeting of the Asian Development Bank (ADB) last Friday.

    Before the May Day holidays, there was wide speculation in the Chinese stock market that the government might use the special Sunday session to alter the currency's value.

    The yuan remained unchanged in the first day of inter-bank trading after May 8, dashing speculation on the currency exchange alteration.

    (Source: CRIENGLISH.com)