Thursday, January 7, 2010

China Think Tank: Timing Good For [10%] Yuan Revaluation

From the Wall Street Journal:
One prominent voice within China said now is an ideal time for a 10% appreciation of the yuan, countering Beijing's assertion that the country doesn't need to adjust its currency.

It wasn't clear whether the call, from a think-tank-affiliated researcher, was a tip that leadership views on the yuan could be in flux or whether it was merely the expression of a contrarian view. The Chinese Academy of Social Sciences regularly offers policy ideas to the Chinese government for consideration, though its views don't necessarily represent official government thinking.

The comments, in an essay by a researcher at the Institute of World Economic and Politics under the think tank, run counter to leaders' frequent defense of the government's current yuan policy of gradual reform and resistance to international pressure for currency appreciation.

"There's a very urgent need" for pushing forward the reform plan on the yuan and "now is the best timing," said Zhang Bin, a research fellow at the institute.

"A 10% appreciation in the yuan against the dollar should have a limited impact on the Chinese economy" and reduce speculative fund inflows by effectively eliminating expectations of a yuan appreciation, Mr. Zhang said.

The one-off appreciation should be made before the yuan can float in a wider band, Mr. Zhang said. Calling for a "more reasonable" yuan exchange rate, he said the Chinese unit should be allowed to rise or fall as much as 3% annually against the U.S. dollar.

"The yuan can reference a basket of currencies in a way that the central bank feels suitable," Mr. Zhang said on the sidelines of a seminar Wednesday at which he made the yuan recommendations.

In daily trade, the yuan was nearly unchanged. The yuan currently is allowed to move only 0.3% on either side of the daily dollar-yuan central parity rate. In 2009, the yuan was virtually unchanged against the dollar on an annual basis....MORE