Beijing denies yuan float deadline
Beijing yesterday denied it was considering a free-float of its currency by the first quarter of next year but analysts said a more flexible exchange rate was already on the cards.
Hong Kong-based Chinese-language daily Ming Pao reported that Premier Zhu Rongji had told a delegation of Hong Kong businessmen that the International Monetary Fund had suggested the yuan be freely floated by the final quarter of this year or early next year, and that he was seriously considering the proposal.
Mr Zhu would ask the Hong Kong Government to submit a report on the impact of such a move on the Special Administrative Region, according to the report. However, a central bank official said he was unaware of any such request by the IMF, and that there was no change in currency policy.
Jin Liqun of the Ministry of Finance was also quoted in Tokyo as saying he was comfortable with the existing managed float for the yuan. 'We do not think it is good for the yuan to fluctuate within too wide a range,' he said.
The mainland allows currency convertibility on the current account, which includes trade, though it keeps controls on the capital account, which covers investment.
IMF officials had no immediate comment on the report but economists said Beijing would not allow a free float for its currency in the near term.
'It is impossible for the yuan to have an all-out free float at this time,' said Liao Qun, an economist at Standard Chartered Bank in Hong Kong.
'The conditions are not ripe.' Beijing has been concerned about its ability to regulate its financial system and monitor the flow of so-called 'hot money'. Until those regulatory mechanisms are in place, Beijing is unlikely to abandon its managed float regime.
Beijing has however been looking to allow more movement in its exchange rate system, particularly as it sees the Asian crisis behind it and looks ahead to entry into the World Trade Organisation.
Central bank chief Dai Xianglong this month signalled that Beijing was putting convertibility of the yuan back on its agenda though he made it clear this was a goal that would not be reached in the immediate future. Economists said IMF and mainland financial officials had held discussions on allowing greater flexibility for the currency, particularly as Beijing draws closer to joining the WTO.
While the mainland kept the yuan within a tight range throughout the Asian crisis, it has allowed a wider trading band of late.
Since May 23, the yuan has closed outside the usual trading range of 8.2770-8.2800 to one US dollar on 12 occasions. On Monday, the currency closed lower on the Shanghai-based foreign exchange market at 8.2773 to one US dollar compared with 8.2767 on Friday, though dealers said there was no impact from the Ming Pao report.
Economists said the main objective now was to determine how much flexibility the exchange system could take and how to implement it.
'They [Chinese authorities] could expand the currency's movement a bit,' said Huang Zemin, an economist and finance professor at the East China Normal University. 'The Asian crisis is over. They are looking at how to do it and by how much.' Mr Huang noted that entry into the WTO would bring more foreign financial institutions into the mainland market and that would mean a gradual easing of restrictions in the financial sector.
