China Says It Will Loosen Currency Controls

May 31, 2006
China's central bank on May 31 pledged to gradually diminish its role in controlling the nation's currency to allow market forces more say in setting the value of the yuan. "In the initial stage after the yuan exchange rate formation mechanism reform, ...

China's central bank on May 31 pledged to gradually diminish its role in controlling the nation's currency to allow market forces more say in setting the value of the yuan. "In the initial stage after the yuan exchange rate formation mechanism reform, the central bank had to adopt open-market operations to soothe market fluctuation and to play the role of 'fluctuation stabilizer'," the People's Bank of China said in its quarterly report.

But as the market matures, it will "gradually reduce the frequency of its open-market operations and weaken their intensity as a way to gradually step out of the market". Open-market operations refers to China's central bank buying and selling its own currency to restrict movements in its value.

China scrapped the yuan's long-standing peg to the U.S. dollar last July in favor of an informal link to a basket of currencies, but it has been slow to loosen its grip on the currency's value.

The central bank also reiterated May 30 it would "deepen reforms" of its foreign currency regime and take more steps to balance international payments as well as stable monetary policy in order to control credit growth. Concerning its strict controls on its capital account the bank said it would continue to push forward convertibility reforms and expand channels for the outflow of capital by foreign companies in China.

Copyright Agence France-Presse, 2006

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