Changes to the exchange-rate mechanism may be unexpected, premier indicates The central government is laying the groundwork for a more flexible exchange-rate mechanism, and the changes may come as a surprise, Premier Wen Jiabao said. 'We are working on a plan to reform the exchange-rate system. Regarding the timing of the reform and specific measures to be adopted, this could possibly be something unexpected,' Mr Wen said at the Great Hall of the People yesterday, after the close of the annual session of the National People's Congress. He said some of those calling for an immediate appreciation of the yuan had not fully understood the impact of such a move. 'We are a responsible nation,' the premier said. 'When we decide on the revaluation of our currency or reform of our exchange-rate regime, we must take into consideration not only our domestic interests, but also the possible impact on neighbouring countries and the world.' Beijing keeps the yuan pegged in a narrow range around 8.28 to the US dollar. The US and many other developed economies say this rate is artificially low and gives mainland manufacturers an unfair advantage in global competition, resulting in Beijing's soaring trade surpluses with many of its trading partners. While the central government has resisted foreign pressure to break the peg, leaders have repeatedly promised to move towards a more flexible regime in an effort to resolve trade imbalances with major partners. Mr Wen warned that there was no consensus on the impact that any changes to the exchange rate would have on the mainland's economy and enterprises, or neighbouring nations and the rest of the world. He said Beijing had never ceased reforming the exchange-rate regime since it was introduced in 1994. 'The purpose of the reform is to establish a market-based, managed and floating exchange rate,' he said. Heading the list of Beijing's concerns is the impact a more market-oriented regime would have on a banking system burdened with hundreds of billions of yuan in bad loans. Speculative money has been flowing into the mainland over the past year in anticipation of an imminent yuan appreciation. But Mr Wen last year ruled out such a move, saying the speculative activity made any change more unlikely. Mr Wen said the central government was now working to create favourable conditions for reforming the exchange-rate system.