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Central bank: Yuan rates already market regulating
The People's Bank of China, the central bank, said the yuan exchange rate is now made floating according to market forces, ruling out any more government-decreed revaluation of its currency, also called Renminbi.
Since its 2.1 per cent appreciation of the yuan announced on July 21, there are growing expectations in the Western world that further revaluations will follow, triggering increasing speculative fund inflows. Some critics in Washington have also called for a much more substantial rise of the Renminbi against the US dollar. "Some foreign people have tried to create misunderstanding by saying the adjustment is an initial move and there will be more to come," the bank said in a statement, adding that such foreigners had come up with such explanation "to suit their own purposes". In fact, the bank said, the renminbi rate was being set "according to objective rules". "These movements will be created by the floating mechanism and there will be no more official adjustments of the renminbi level," it said. The central bank said that in trading since revaluation, the yuan had been reflecting market forces and movements in international currency exchange rates. Renminbi non-deliverable forwards, an off-shore instrument used to bet on the Chinese currency, suggest investors expect significant further appreciation of the renminbi over the next 12 months, the Financial Times reported. The newspaper quoted Professor Michael Pettis of the Guanghua School of Management at Peking University as saying market expectations might be difficult to change, since pressure for revaluation had largely been driven by trade imbalances and money supply concerns. The central bank's new regime for rates formulation - a "managed float" based on "market supply and demand with reference to a basket of currencies" - means that the bank's claim that yuan rates will reflect market movements must be taken on trust, the paper said. Some analysts say the lack of clarity, including the details of the said basket of currencies, is intentional, aimed at giving the bank more flexibility in setting its new renminbi policy. Earlier last week, Li Deshui, commissioner of the National Bureau of Statistics who also sits at the central bank's policy research and making commission, told reporters that the capital account won't be let open to market speculation funds, and the yuan won't become fully convertible in at least five years.
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