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China should uphold renminbi rate system
Updated: 2004-04-24 09:50

China's top forex regulator said Friday the country should uphold its managed, floating Renminbi exchange rate system based on market demand and supply in the long run because it conforms to domestic realities.

A spokesman for the State Administration of Foreign Exchange (SAFE) made the remarks in response to reports by some overseas media, which made such comments as "The Renminbi will be pegged to a basket of currencies" and "massive speculative funds are flowing into China from overseas".

A floating exchange rate system -- instead of a fixed one -- has been in place in China since 1994, he claimed.

"The existing exchange rate system is in compliance with China's reality and should be adhered to for a long period of time."

The spokesman said the SAFE would, however, further explore and perfect the determining mechanism of the Renminbi exchange rate amid efforts to deepen financial reform by taking into account China's economic strength and performance and international balance of payments.

"There are various plans to opt for in improving the exchange rate's formulation mechanism. We will proceed from China's specific conditions while drawing on the experiences and lessons of other countries," he said

He went on to say that the reform is aimed at keeping the Renminbi yuan basically stable at a rational equilibrium.

The SAFE has vowed to be highly alert on and follow closely cross-border capital flows and "be ready at all times to fight ruthless behavior against China's forex management rules".

The SAFE spokesman acknowledged that much forex money flowed into China over recent years, but "not all of it should be treated as speculative funds betting on the yuan's appreciation".

"Presently," he said, "forex flows are legal in general."

"Of course, we cannot rule out the inflow of absolutely speculative capital, but the quantity is very limited," the spokesman said.

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