Liberalize the yuan, but gradually
Beijing (AsiaNews) China is preparing for the full convertibility of its currency, the yuan. But this will happen gradually, giving a major role to the financial markets in setting its rates of exchange.
Speaking on national TV, director of China's Central Bank , Zhou Xiaochuan, said: "requests to make the yuan-renminbi fully convertible have become ever greater due to the fact that it is becoming a important currency in Asia and across the globe."
Zhou Xiaochuan also said that, with such an end in mind, China will develop a unified market exchange rate system. Yet he didn't give any details on how this would be possible or take effect.
Currently the yuan's market value is tightly controlled by a system whose backbone is formed by system of commercial banks in which the only major player is the country's Central Bank. The latter's continuous interventions guarantee a fixed exchange rate against the U.S. dollar at 8.26 yuan.
To gradually free up the market the Central Bank plans for banks to become independent operators ("market makers") and to set, among themselves, values on foreign exchange transactions.
In the West the yuan's exchange rate is widely considered to be undervalues, that is, it makes Chinese exports strongly competitive on the international market.
Many factories in more developed countries have been forced to shut their doors, having been crushed by the competition of lower Chinese prices. Others have transferred production to countries having low manual labor costs.
For this reason, especially in the United States, there has been popular insistence for the yuan to be revalued. An alternative proposal has been to anchor the Chinese currency not just according to the U.S. dollar but also according to a mixed bag of international currencies, including the euro and Japanese yen.
China's Central Bank seems to prefer a solution which, without making any sudden bold moves, will allow for a progressive liberalization of markets and a slight revaluation the yuan's rate of exchange. (MdO)
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12/01/2006
