The central government has reiterated that it will not radically adjust its foreign exchange regime for a relatively long time, maintaining its gradualist approach to making the currency convertible. Guo Shuqing, head of the State Administration of Foreign Exchange (Safe), said it was unlikely that Beijing would relax its strict hold on the yuan but would maintain a certain level of flexibility that hinged on market supply and demand. 'It's impossible that we adopt a free-floating exchange rate,' Mr Guo told reporters after a discussion meeting with CPPCC representatives yesterday. '[A free-floating system] will create serious consequences,' he said, pointing to the negative effects on many countries during the Asian financial crisis in 1997. The State Information Centre, a research unit of the powerful National Development and Reform Commission, said recently it was inevitable the yuan would appreciate and that it could be pegged to a basket of currencies. The centre also expected the exchange rate to appreciate 3 to 5 per cent this year, according to mainland press reports. Beijing's resistance to international pressure to revalue the currency, which is convertible only in the current account, has translated into a record trade surplus with the United States. The US has argued that the yuan's link to the dollar has given Chinese exports an unfair advantage. Mr Guo's comments echoed Premier Wen Jiabao's pledge in his annual work report to 'steadily deregulate interest rates to leave them to market forces, and reform the mechanism for setting the exchange rate for the renminbi and keep it basically stable at a proper and balanced level'. China's rising exports and the continuous inflow of foreign investment helped boost the country's foreign reserves to a staggering US$609 billion by the end of last year. But much of the reserves are invested in US Treasury bonds whose value has shrunk due to the weakening greenback. Mr Guo brushed off fears of any negative impact on the reserves. 'As far as [any] foreign currency is concerned, there will be fluctuation and market risks,' he said. At the same time, Mr Guo declined to disclose how much of the country's reserves were in US dollar assets, pointing out that trade, foreign investments and foreign debt were a few of the determining factors on the back of an overall economic picture. In October last year, China raised interest rates for the first time in nine years to rein in overheating spurred by excessive investment in sectors such as property and steel. Asked if there would be a rate increase this year, the People's Bank of China Governor Zhou Xiaochuan said that depended on economic development. 'We have to look at which way economic indicators develop.'