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Central banker denies yuan revaluation
Updated: 2005-05-13 15:29

China's central bank governor Zhou Xiaochuan said there will be no revaluation of the yuan when the country expands its foreign exchange trading system next week, quashing media speculation.

Zhou Xiaochuan
"Media reports on the expected appreciation of the Chinese currency, renminbi (yuan), on May 18 are not correct," Zhou was quoted as saying by Xinhua.

"That is definitely impossible. That's only what foreigners have been saying and only some individuals at that.

"Can you really take that seriously?" he said.

Under a previously announced plan, more currencies will be added to China's forex trading system next Wednesday, sparking speculation that the People's Bank of China could use the occasion to revalue or widen the yuan's trading band.

Trading will be broadened to introduce eight new currency pairs, including the US dollar against the Hong Kong dollar, Japanese yen, British pound, Swiss franc, Australian dollar, Canadian dollar and the euro, and the euro against the yen.

Earlier this week tens of billions of dollars of speculative money was let loose on forex markets worldwide after confused reports -- rejected by the central bank -- that China would revalue the currency on May 18 at the time of the change.

Beijing is under pressure to float the yuan. Legislation pending in the US Congress would impose a 27.5 percent tariff across the board on Chinese imports if the peg does not get relaxed within six months.

The yuan is currently fixed at about 8.28 to the dollar.

Although Beijing has assured the international community that it is preparing to move towards a more flexible currency regime, it has refused to reveal a timetable.

"The pressure may not be the most important problem. The key point is to follow our own logic of reform to design the starting point, the goal and the sequence of the reform," governor Zhou said.

Analysts argue that Beijing could revalue its currency to soothe mounting foreign concerns and jittery international markets and as such, a change to the current system might come in the next few months.

"Chinese authorities, if they are waiting for a calm moment, they are not going to get it," said Tim Condon, an economist at ING. "Most traders feel that revaluation is more likely sooner rather than later and I'm in that camp, with a revaluation coming sometime before the end of June," Condon said.

“II can only repeat all we have indicated for some time. A flexible exchange rate arrangement would be in China's interest,” IMF spokesman Thomas Dawson told reporters.

On Thursday, central bank vice governor Wu Xiaoling reiterated that China would not bow to external pressures to revalue the currency and blamed the United States for creating a negative environment for any eventual loosening of the yuan peg.

She said the pressure has resulted in rampant speculation that currency reform was imminent, prompting a flood of hot money into Chinese assets, especially property, in expectation of an appreciation. It had also hamstrung the government's macro-reform policy, especially as it tries to cool down an overheated economy, she added.

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