China renews promises of 'more flexible' yuan

AP News
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Posted: Apr 15, 2011 9:55 PM
China renews promises of 'more flexible' yuan

China's central bank governor has renewed promises to ease controversial exchange rate controls _ but says change will be gradual.

Zhou Xiaochuan said Friday that the exchange rate of China's yuan will be made "more flexible" but in a "step by step" way, the official Xinhua News Agency reported.

Washington and other governments complain China keeps the yuan undervalued, distorting trade and hampering a global recovery. Officials of the Group of 20 major economies meeting Friday in Washington agreed to look at "currency misalignments," a response to frequent complaints about the yuan.

Beijing promised more flexibility in June, but the U.S. Treasury Department says the 4.5 percent increase in the yuan, also known as the renminbi, against the dollar since then has been too slow.

"China will continue to carry out reform in the financial department, including currency reform, pushing forward development of an 'exchangeable renminbi' and making the renminbi exchange mechanism more flexible," Zhou said at a conference in the southern Chinese city of Bo'ao, according to Xinhua.

"This is what we want to do, and we should do it step by step," Zhou said.

Beijing's controls require it to buy dollars and other foreign currency to restrain the yuan's rise. China's foreign reserves soared above $3 trillion in March, a sign the central bank is still intervening in currency markets despite the June promise.

In a report this week, the International Monetary Fund cited Beijing's currency controls as one factor that might weaken a global economic recovery.

Officials including Premier Wen Jiabao have ruled out a fast appreciation of the yuan, saying that might hurt Chinese companies and cost jobs.

Analysts expect Beijing to allow the yuan to rise to cool inflation, which surged to a 32-month high of 5.4 percent in March. A stronger yuan would help to restrain prices by making oil and other imported goods cheaper in Chinese currency terms.