Central bank to push currency reform
By Shenzhen Daily/Agencies
Updated: 2005-11-17 10:50

China will press ahead with market-orientated currency reforms while keeping the exchange rate of the yuan basically stable, said Su Ning, a vice-governor of the People's Bank of China.

Su, in a restatement of the central bank's long-standing policy, told a conference that the reforms were aimed at making the exchange rate more flexible and at rebalancing China's economy.

The pace of reform, which would also entail steady progress towards removing capital account restrictions, would take into account domestic and international factors, Su said.

"In particular we will let market supply and demand play a fundamental role in setting the exchange rate, all the while keeping the renminbi's exchange rate basically stable at a rational and balanced level," he said.

The yuan, also known as the renminbi, has appreciated just 0.33 percent since it was revalued by 2.1 percent against the dollar in July and allowed to float in tightly managed bands.

China's trade surplus has since continued on a rising trend and hit a record US$12 billion in October.

Su said a more flexible exchange rate would play a role in adjusting China's balance of payments and in achieving a better balance between the domestic and export sectors of the economy.

As a large developing country, China needed to emphasize domestic demand, Su said.

Su said China's swelling current account surplus reflected a high savings rate of more than 45 percent of gross domestic product, which in turn partly reflected the country's underdeveloped financial markets.

A constant complaint of central bank officials is that because of a dearth of investment products and scant attention to returns, banks are unable to generate high yields for their depositors, thus prompting them to save even more.

To that end, Su said the authorities were striving to complete the restructuring of the country's big four banks by the end of 2006, when China must open domestic yuan business to foreign competition in line with pledges made when it joined the World Trade Organization in 2001.