MercoPress. South Atlantic News Agency

Yuan managed flotation will help “gain time”

The revaluation of the Chinese currency and its managed flotation will help gain time but won't solve by themselves all the misbalances of the economy, according to Dr. Yu Yongding, member of China's Central Bank Monetary Policy Committee.

"In the short term pressure on the yuan for further appreciation will increase. The new exchange policy and the small appreciation will not solve the economic misbalances of China or the problems of its economy", indicated Mr. Yu Yongding.

Over the weekend Zhou Xiaochuan chairman of the Chinese Central Bank described the long expected revaluation of the yuan as the "initial adjustment".

"International financial markets will definitively bet that the 2,1% yuan revaluation is not the end of the process", underlined Mr. Yu Yongding.

However the managed floating system adopted, tied to a basket of currencies and not exclusively to the US dollar, will enable China to contain speculative forces and reduce excessive fluctuations of the currency, believes the Chinese monetary policy expert.

"China has capitals control and other policy instruments which can limit the impact of any speculative attack against the economy as a consequence of the currency appreciation and market expectations of a further increase", said Mr. Yu Yongding adding that to avoid such a scenario, "the Central Bank will continue to fix the yuan value in a very narrow band".

Last week China announced the end of the decade long fixed exchange rate of 8,28 yuan to the US dollar, and its replacement by a narrow floating system tied to a basket of currencies.

In theory this should allow the yuan to float 0,3% up and down, against the US dollar.

China has accumulated international reserves totalling almost 700 billion US dollars of which 195 billion are in US Treasury bonds.

In the first day of operations the yuan closed at 8,1097 to the US dollars, above the targeted band, but money operators said the advance must not be interpreted as official policy letting the currency appreciate significantly in the short term.