China says no revaluation when forex trading expands

China says no revaluation when forex trading expands

Agence France-Presse, Beijing

China's central bank governor Zhou Xiaochuan said on Friday there
will be no revaluation of the yuan when the country expands its
foreign exchange trading system next week, quashing intense media
speculation.

"Media reports on the expected appreciation of the Chinese
currency, renminbi (yuan), on May 18 are not correct," Zhou was
quoted as saying by the official Xinhua news agency.

"That is definitely impossible. That's only what foreigners
have been saying and only some individuals at that.

"Can you really take that seriously?" he said.

Under a previously announced plan, more currencies will be
added to China's forex trading system on Wednesday, sparking
speculation that the People's Bank of China could use the
occasion to revalue or widen the yuan's trading band.

Trading will be broadened to introduce eight new currency
pairs, including the U.S. dollar against the Hong Kong dollar,
Japanese yen, British pound, Swiss franc, Australian dollar,
Canadian dollar and the euro, and the euro against the yen.

Earlier this week billions of dollars of speculative money was
let loose on forex markets worldwide after confused reports --
forcefully rejected by the central bank -- that China would
revalue the currency on May 18 at the time of the change.

Beijing is under fierce pressure to free up the yuan.
Legislation pending in the U.S. Congress would impose a 27.5
percent tariff across the board on Chinese imports if the peg
does not go within six months.

The yuan is currently fixed at about 8.28 to the dollar, a
level that many of the country's foreign trade partners argue is
artificially low and unfairly boosts Chinese exports.

Although Beijing has repeatedly assured the international
community that it is preparing to move towards a more flexible
currency regime, it has steadfastly refused to reveal a
timetable.

"We need to design our reforms, including taxation, interest
rates and exchange rates, in an effort to solve domestic
problems," said governor Zhou.

"The key is to follow our own logic to design the starting
point, the target and the process of the reform."

Analysts argue that Beijing must revalue its currency to
soothe foreign concerns and jittery international markets, and as
such, a change to the system would have to come soon.

"Chinese authorities, if they are waiting for a calm moment,
they are not going to get it," said Tim Condon, an economist at
ING.

"Most traders feel that revaluation is more likely sooner
rather than later and I'm in that camp, with a revaluation coming
sometime before the end of June," Condon said.

Deutsche Bank said China would most likely revalue the yuan in
the second half of the year.

"The most sensible option ... is an initial widening of the
trading band to around two percent, followed by a three to five
percent annual average appreciation over several years within a
'managed float' structure," it said in a research note.

In Washington on Thursday, the International Monetary Fund
(IMF) made clear it too felt China was ready and able to reform
its currency system.

"I can only repeat all we have indicated for some time. A
flexible exchange rate arrangement would be in China's interest,"
IMF spokesman Thomas Dawson told reporters.

On Thursday, central bank vice governor Wu Xiaoling reiterated
that China would not bow to external pressures to revalue the
currency and blamed the United States for creating a negative
environment for any eventual loosening of the yuan peg.

She said the pressure had resulted in rampant speculation that
currency reform was imminent, prompting a flood of hot money into
Chinese assets, especially property, in expectation of an
appreciation.

It had also hamstrung the government's macro-reform policy,
especially as it tries to cool down an overheated economy, she
added.