Foreign Exchange News
- Curb pace of yuan rise, economist urges
Date: 12-Jun-2007 Sources: (Shenzhen Daily)
THE government should contain the pace of yuan appreciation to within a bearable range because a big rise would aggravate the country's overcapacity problem, a prominent economist said in comments published yesterday.
The yuan has now gained a further 5.7 percent since it was revalued by 2.1 percent and freed from a U.S. dollar peg to float within managed bands in July 2005.
Last month, authorities widened the yuan's daily trading band against the dollar to up or down 0.5 percent from its morning mid-point, compared with 0.3 percent before.
But a big rise in the currency would reduce the country's exports and subsequently worsen overcapacity in exporting sectors, Justin Lin, a professor with Beijing University, wrote in the People's Daily.
Moreover, an increase in imports resulting from a stronger yuan would displace some domestic products, exacerbating the problem of excess production in those sectors, Lin said.
That would push some domestic manufacturers into bankruptcy and risk fanning economic and financial crisis, he added.
'In developing countries with rapid growth, the government should send clear-cut signals to the market to create stable expectations about currency appreciation and keep the scale of strengthening within a bearable range,'Lin said.
Lin did not spell out how much of an annual rise would be appropriate, but he has said in the past that a pace of 3 to 5 percent a year was suitable.
His comments came even as the yuan fell sharply against the dollar yesterday, extending last week's slide and erasing gains from a rally that preceded Sino-U.S. trade talks in May, as the central bank applies the brakes to the currency's ascent.
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