CHINA / National

China should widen yuan trading band - economist
Updated: 2006-07-21 10:30

China needs to widen the yuan's trading band to introduce greater currency flexibility to help cool speculation and rein in excess liquidity, an influential economist said in remarks published on Friday.

Calls among economists to let the yuan rise faster to help ward off economic overheating have gained momentum after the economy grew a surprisingly strong 11.3 percent in the second quarter from a year earlier.

"Considering rampant liquidity, it's necessary to adopt a more flexible exchange rate regime by widening its floating band," the China Securities Journal quoted Ba Shusong, vice head of the financial research institute at the Development Research Centre, as saying.

A wider trading band could help cool market speculation since the yuan could rise and fall by a bigger margin on a daily basis, therefore increasing the cost and risk for speculators, he said.

The yuan has strengthened a further 1.48 percent since it was revalued by 2.1 percent on July 21, 2005, and freed up a decade-old dollar peg to float within managed bands with reference to a basket of currencies.

The yuan is allowed to move 0.3 percent each day up or down against the U.S. dollar, although in practice it does not move nearly so far. So any widening of the band might be merely symbolic, at least initially.

Chinese officials have pledged to gradually increase the yuan's flexibility by making better use of its daily trading band rather than carrying out another one-off revaluation.