china says limits on dollar-yuan to stay

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    Monday September 26, 2:59 am ET
    By Elaine Kurtenbach, AP Business Writer
    China Says Limits on Dollar-Yuan to Stay, Despite Wider Range for Other Currencies

    SHANGHAI, China (AP) -- The Chinese yuan fell slightly against the dollar Monday after Chinese officials rejected calls from Beijing's trading partners for faster currency reforms during weekend G-7 meetings in Washington.

    Chinese authorities also strongly suggested Monday that the narrow trading band governing the dollar-yuan exchange rate's daily movement would remain, despite a move Friday to loosen controls on other currency rates.

    At midday, the yuan was trading at 8.0916 per dollar, down from its Friday close of 8.0910. Traders said the dollar gained as market participants interpreted the pressure from the Group of Seven industrialized nations as not particularly intense.

    Many of China's trading partners believe the yuan is undervalued, giving China an unfair trade advantage, and would like to see the yuan appreciate.

    China revalued its currency on July 21 to 8.11 yuan to the dollar from its decade-long rate of 8.27, an appreciation of 2.1 percent. It also cut the yuan's peg to the dollar, allowing it trade in a restricted float against a basket of currencies.

    In a small step toward greater foreign exchange flexibility, Chinese authorities on Friday decided to expand the daily range the yuan could move against three currencies -- the euro, yen and Hong Kong dollar -- to 3 percent above and below their opening levels from the previous 1.5 percent band.

    But they kept the daily trading band for the dollar-yuan exchange rate at a much narrower 0.3 percent in either direction -- the range announced in the July 21 revaluation. Since that date, the yuan has gained less than 0.3 percent against the dollar.

    Friday's change shouldn't be interpreted as a major policy shift, the central bank said.

    "This move doesn't mean a fundamental change of RMB exchange rate formation mechanism," the state-run newspaper China Daily quoted Hu Xiaolian, a deputy governor of the People's Bank of China, as saying at a weekend meeting in Washington. The RMB stands for renminbi, or "people's money," another word for the yuan.

    In G-7 finance ministers meetings in Washington, Chinese financial officials told their U.S. counterparts that Beijing would stick to a policy of "gradualism" in its currency reforms.

    Since the July 21 revaluation, "the market performance ... demonstrates that the current floating range for the renminbi against the U.S. dollar is appropriate," the China Daily cited an unnamed central bank spokesman as saying.

    American officials reported no progress in the one-on-one discussions U.S. Treasury Secretary John Snow held with China's central bank governor, Zhou Xiaochuan, and with Finance Minister Jin Renqing.

    Hu said the expansion of the trading range for the yuan against other currencies was intended to give commercial banks more leeway for controlling risk. It was also expected to raised costs faced by speculators.

    "This move serves to give commercial banks more discretion in pricing so that they can effectively balance the return with cost and manage risks," she was quoted as saying.

    The narrower limits on the yuan's movement against the dollar reflect Beijing's desire to keep that exchange rate stable amid a huge volume of transactions, the report suggested, noting that 80 percent of China's foreign trade dealings are settled in U.S. dollars.

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