China could widen yuan band or revalue

BEIJING: China's cabinet has reached a consensus on the need to let the yuan appreciate more quickly but is still considering how to do it, according to a Hong Kong-based newspaper report, citing unidentified sources. The Beijing-affiliated newspaper said the central bank had offered two proposals to adjust exchange rate policy: widening the daily dollar-yuan trading band to 0.8 to 1.0 percent or carrying out another revaluation.

The current daily trading range permitted against the dollar is plus or minus 0.5 percent from a midpoint set every morning by the central bank, although the full width of the band has never been tested. "Relevant departments under the State Council have reached a consensus; the yuan exchange rate indeed needs further appreciation and adjustment," the newspaper paraphrased the sources as saying.

The newspaper said any policy move, once decided, could be announced during next month's U.S.-China strategic economic dialogue, or around the time of next year's annual session of parliament in March. Beijing is facing increasing pressure from its major trading partners, especially the European Union and the United States, to let its currency trade more freely.

While the yuan has risen 9.7 percent against the dollar on top of its initial 2.1 percent revaluation in July 2005, critics say it remains significantly undervalued, handing Chinese exporters an unfair edge in global markets. What's more, the yuan has actually fallen about 11 percent in total against the euro to the dismay of European monetary officials. Beijing widened the yuan's daily band against the dollar to 0.5 percent from 0.3 percent in May, ahead of the last round of the U.S.-China dialogue, held in Washington in May.