China's Wen Promises Currency Reform

Will allow market greater role in setting renminibi exchange rate

Chinese Premier Wen Jiabao said May 16 his government was pushing ahead with reform to allow the market a bigger role in determining the nation's currency, the yuan. "We're deepening reforms of the foreign exchange management system to improve the mechanism of setting the renminibi exchange rate and give greater scope to the role of the market," he said.

Wen, who was addressing the opening of the annual meeting of the African Development Bank, also said greater interest rate flexibility would be introduced.

The value of the yuan is the main source of trade friction between the U.S. and China, with Washington accusing the Chinese government of artificially keeping the currency low to give its exporters an unfair advantage. China revalued the currency by 2.1% in July 2005 and has since then allowed the monetary unit to gain about 5%. However, for many of China's major trading partners, especially the U.S, the gains are viewed as far too slow, with Washington persistently demanding Beijing to quicken the pace of the reform.

"We are improving the management of foreign reserves by expanding the scope and ways of using forex reserves," Wen said. It appeared that Wen was referring to a new foreign exchange management company that will be charged with investing part of the nation's $1.2 trillion of forex reserves in relatively high-yield, low-risk instruments.

Copyright Agence France-Presse, 2007

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