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China to allow more exchange rate flexibility

06-21-2010 08:34 BJT Special Report: China to Reform RMB Exchange Rate Regime |

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China's central bank has announced, it will allow a more flexible exchange rate for its currency. The People's Bank of China, will proceed with the reform of the yuan exchange regime, because the economic and financial situation has improved at home and abroad.

It is China's first announcement to speed-up the reform of its currency since 2008.

The decision comes after 2 years of the yuan's relatively stable exchange rate to US dollar... since the beginning of global financial crisis. It has been made in light of the current state of Chinese economy.

Prof. Li Daokui, Tsinghua University, Beijing, said, "The Chinese economy is running very well, it's well on the track of a V-shape recovery. While there is a small risk of over-heating, the global economy is recovering strongly. The reform is mainly based on domestic reasons, and not due to external non-economic factors."

The central bank has ruled out a large-scale appreciation of the yuan any time soon.

Professor Li says the yuan's future trend will depend on the euro's stability, and the fluctuations of other major currencies. If the euro stabilizes against the US dollar, the yuan may resume its gradual appreciation against the greenback by 2 to 3 percent this year.

The reform announcement comes a week before Chinese President Hu Jintao attends the G20 summit in Canada, where China's currency is likely to generate debate.

The U.S. has repeatedly criticized China for keeping its currency low. US lawmakers argue the exchange rate is the main cause of China's huge trade surplus with Washington.

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