Ratings agency Standard & Poor's has backed China's decision not to revalue the yuan, saying that any flotation would be dangerous and could damage the nation's creditworthiness, as well as that of local banks.
'Standard & Poor's considers that lifting of exchange controls at the moment could be risky because Chinese banks are ill-equipped to handle volatility in the exchange rate,' said Ping Chew, the agency's credit analyst for China.
This was despite increasing pressure on China for a revaluation from its trade partners, including the US and Japan, preferably by allowing the renminbi to float.
US Treasury Secretary John Snow visited Beijing this month to ask the leadership to end the renminbi's peg to the US dollar and allow it to float freely.
However, Premier Wen Jiabao said currency stability was paramount to China's economic and financial reforms.
Instead of cutting the peg, mainland officials offered to liberalise exchange controls to allow more capital to flow into international markets.
Zhou Xiaochun, governor of the People's Bank of China, said it was possible the government might float the renminbi and peg it to a basket of foreign currencies in the future when the cleanup at state-run banks had been completed.
