China will continue to gradually increase the flexibility of the renminbi exchange rate, said Zhou Xiaochuan, governor of the People's Bank of China, in Beijing yesterday.
In a Cabinet work report delivered at the just-opened annual parliament session yesterday, Premier Wen Jiabao said China will "improve the system of managed floating foreign currency exchange rates and keep the RMB exchange rate basically stable at an appropriate and balanced level."
Zhou explained after the opening session that what the premier said "means that China would continue to increase the flexibility of the RMB exchange rate in a gradual manner."
The central bank governor said judging from the current stage of the renminbi exchange rate reform and the exchange rate fluctuations in the international market, the present floating scope of the renminbi exchange rate is "adequate."
"This floating range can be expanded in terms of the future development, but it has to be based on the actual situation both at home and internationally," said Zhou.
China's government started managing the renminbi's value against a basket of currencies in July, allowing it to move by as much as 0.3 percent against the US dollar either side of a daily rate announced by the central bank. In practice, the renminbi's biggest daily swing has been less than a third of the maximum.
"It's a natural step for the country to gradually widen the trading band," said Ha Jiming, chief economist of China International Capital Corp in Beijing. "Conditions in China are mature enough for this to happen."
The governor declined to answer the question whether China would adjust the floating scope of the renminbi exchange rate before President Hu Jintao's visit to the United States, scheduled for April.
China revalued the renminbi by 2.1 percent against the dollar on July 21 last year and dropped the 11-year peg to the US unit in favor of a link to a basket of currencies.
Currently the exchange rate stands at 8.0380 renminbi to US$1, 2.88 percent higher than last July.
Nevertheless, Washington has kept pressuring Beijing to take bigger steps in raising the flexibility of the renminbi exchange rate.
China won't reduce its US dollar holdings, even as it changes the makeup of the nation's foreign-exchange reserves, Zhou also said.
The central bank is "adjusting" the reserves based on international market conditions, he said. Dollar assets won't be reduced because the reserves are continuing to grow as the central bank changes the mix of its existing portfolio, he said.
China's foreign-exchange reserves jumped by a third to US$818.9 billion last year, almost matching those of Japan, the world's biggest holder.
China's purchases of US Treasury securities have helped to hold down US interest rates and sustain consumer spending in the world's biggest economy.
China plans to "optimize the structure" of its reserves and "actively explore" ways of investing foreign exchange more efficiently, Hu Xiaolian, director of the State Administration of Foreign Exchange, a central bank unit that manages the reserves, said in January.
(Xinhua)