RMB under heavy appreciation pressure

Updated: 2006-10-28 10:40

The daily 0.3 percent floating band between the RMB and the U.S. dollar is wide enough, even if the RMB is under heavy pressure to appreciate, said a senior official with the People's Bank of China (PBOC) recently.

Tang Xu, director general of the research department of the central bank, said at a symposium on global economic imbalance and adjustment on Thursday that future fluctuations of the RMB will be determined by the market.

China set a floating band of 0.3 percent when it launched a reform of the RMB exchange rate system in July last year. The floating band allows the yuan to rise or fall 0.3 percent on the inter-bank foreign exchange market.

Tang said that it is still too early to tell whether China should convert its dollar reserves into other types of assets as there is no obvious risk of a major depreciation of the U.S. dollar.

China saw its foreign exchange reserves increase by 169 billion U.S. dollars in the first nine months this year. Reserves are expected to hit one trillion U.S. dollars in October, further exacerbating pressure to appreciate the yuan.

Responding to voices that China should reduce its foreign exchange reserves by turning them into oil or gold reserves or allocating a part to the social security fund, Wu Xiaoling, deputy governor of the PBOC, said earlier that the central bank must guarantee the reserves against losses.

Adjusting the yuan exchange rate will help alleviate global economic imbalances, but it is not the only solution, said Tang.


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