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China Resists Pressure to Reform Currency Exchange System

  • Douglas Bakshian

Top Chinese financial officials say the country's currency exchange system will be reformed, but only once conditions are right. The status of the Chinese currency has been high on the agenda of the Asian Development Bank's annual meeting in Istanbul.

Vice Finance Minister Li Yong said there is no set time frame for allowing China's yuan to float. He said Friday that reforms in the country's financial sector and the creation of market mechanisms are prerequisites for allowing market forces to set the currency's levels.

There has been intense international speculation on a possible change to the yuan's fixed exchange rate, but Mr. Li urged people to be patient. China's finance minister, Jin Renqing, earlier this week said Beijing is determined to reform its foreign exchange system, but that intense speculation makes doing so difficult now.

The United States, Japan and the European Union are pressuring China to change its exchange system. The yuan, also known as the renminbi, has been fixed at about 8.2 to the dollar for a decade. Other governments and many Western manufacturers say the rate is too low, making Chinese exports unfairly cheap in the world's markets.

However, Charles Dallara, managing director of the Washington based Institute of International Finance, says China will set the timing of any changes, despite external pressure.

"A renminbi [yuan] revaluation, when and if it comes from China, I think should be, and is likely to be seen, as both compatible with China's own economic circumstances at the time of the move and with its necessary contribution to the global adjustment process," he said.

The massive Chinese economy has a strong effect throughout the larger Asian economy, China buys vast amounts of Asian goods, and exports its products throughout the region. But Mr. Dallara says the region should be able to handle any revaluation of the yuan smoothly.

"There's no reason why this should be disruptive and certainly no reason why it should increase tensions within the region," he said. "I have the feeling that the Asians are doing a good job discussing this among themselves."

The Asian Development Bank, a non-profit institution in Manila, lends to dozens of countries from Fiji in the South Pacific to Sri Lanka in the Indian Ocean. Its 63 members also include the United States, Germany, Australia and Turkey.

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