A business newspaper in Beijing is reporting that China might revalue its currency in March, lifting the value of renminbi by 5 percent against the US dollar.
 
A business newspaper in Beijing is reporting that China might revalue its currency in March, lifting the value of renminbi by 5 percent against the US dollar.

A story in Saturday's edition of the China Business Post cited unnamed senior bankers saying if the central bank decides to revalue the currency, it would probably happen next month.

After a 5 percent revaluation, one US dollar would buy 7.887 yuan, compared with 8.277 at the current exchange rate.

The story said the value of the Chinese currency could rise by a further 5 percent in 2005.

Despite pressure from the United States, Japan and several other major trade partners, the People's Bank of China said in December that the country would keep a basically stable exchange rate as part of its monetary policy.

Many foreign economists have, however, speculated that China would revalue its currency sometime this year. Goldman Sachs Group Inc said in a recent report that it expects an initial one-off renminbi revaluation of 2.5 percent against the US dollar in the first quarter of 2004.

The company also said it expects China to peg the renminbi to a basket of currencies instead of linking it directly to the greenback.

The PBOC is reportedly considering pegging the renminbi to 10 currencies, which would prevent it from falling too far against the euro or yen at a time when the US dollar is down, such as it is now.

The weights of the 10 currencies would be benchmarked to the relative importance they play in China's trade and direct foreign investment.

Meanwhile, Geoffrey Barker, HSBC's chief economist for the Asia-Pacific region, said recently that there should be a window of opportunity to introduce greater flexibility into the renminbi's exchange rate policy in the middle of this year as the US economy has not fully recovered yet.

"We do not expect a large one-off revaluation in the renminbi, we think it will be a gradual move," said Barker.

Zhou Xiaochuan, governor of the Chinese central bank, said in January that China is under less pressure to revalue the renminbi than it was early last year as its trade surplus with the rest of the world is growing at a slower rate than in the past.

China reported a trade surplus of US$53.15 billion with the United States for the first 11 months of last year, a year-on-year rise of 37.3 percent. While the surplus is still growing, the growth rate is down from 47.8 percent during the first 11 months of 2002.

To ease pressures to revalue its currency resulting from its bulging foreign exchange reserves, China injected US$45 billion from its forex reserves into two debt-ridden state-owned commercial banks at the end of last year.

China's forex reserves, the world's second largest after Japan's, rose to a record US$403.25 billion at the end of last year, a rise of US$116.84 billion from a year earlier, according to the State Administration of Foreign Exchange.

(Shanghai Daily February 9, 2004)