RPT US's Paulson urges rapid yuan reform

RPT US's Paulson urges rapid yuan reform

	Published : Wed, 31 Jan 2007 16:19 By : Agencies Print this Story

(Repeating for technical reasons)

WASHINGTON (AFX) - US Treasury Secretary Henry Paulson has urged the Chinese authorities to make rapid progress towards making its currency flexible.

In testimony to the Senate Committee on banking, housing and urban affairs following the Treasury's publication of its report on international economic and exchange rate policies, Paulson said China is 'not moving fast enough' in developing a market-orientated policy for the yuan.

'A major objective of my two remaining years as Treasury Secretary will be pressing the Chinese government to advance towards the goal of a renminbi whose value is freely set in a competitive marketplace, based upon economic fundamentals,' he said.

Paulson conceded that the move will take several key steps.

In addition to widening the band that limits the daily movement of the yuan, Paulson said the central bank should progressively reduce its intervention in currency markets and lay out an anti-inflation strategy. China must also development the fundamental components of a capital market, Paulson added.

'I want to be clear: increased flexibility in the short-run is absolutely necessary but it is not sufficient,' said Paulson.

'My goal is to make significant progress toward a fully market-determined, floating Chinese currency,' he added.

China has made some tentative steps in liberalising its currency regime but not enough to satisfy some Senators, such as Charles Schumer and Lindsey Graham, who have sought legislation for steep tariffs on Chinese exports.

In July 2005, China abandoned the yuan's peg with the dollar, and linked the currency to a basket of currencies.

The step was widely seen as a political move by China aimed at appeasing trading partners like the US and was widely praised by governments and economists as the 'first step' toward greater flexibility in China's forex regime. As expected, the revaluation of the yuan raised the value of Asian currencies, including the yen, against the dollar.

But not much has happened since, fuelling disappointment in the US in particular, which is experiencing a record trade shortfall with the Chinese.

Paulson is set to answer questions from Senators. Most market interest will focus on what he says, if anything, about the yen's inexorable decline on the currency markets.

pan.pylas@thomson.com

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