China pledges to seek more flexible exchange rate

Currency peg since 1995 is blamed for job losses in U.S. manufacturing

October 02, 2004|By BLOOMBERG NEWS

China pledged yesterday to "push ahead firmly and steadily" toward a more flexible exchange rate, yet stopped short of providing a timetable for when it will shift from the decade-old currency peg that has been blamed for widespread job losses in American manufacturing industries.

China has fixed the value of the yuan at about 8.3 to the dollar since 1995. The country's biggest trading partners, including the United States and Japan, say that depresses the value of the currency and hands Chinese producers an unfair trading advantage by making their goods cheaper abroad.

In a statement released yesterday by the U.S. and Chinese governments, China repeated its "commitment to further advance reform," and said it would take more steps to prepare its economy for a more "market-based" currency. The United States backed action "as rapidly as possible."

The statement echoes comments made Tuesday by Chinese Premier Wen Jiabao and came hours before a meeting in Washington between the finance ministers and central bankers of the Group of Seven industrial nations and China.

"In Europe, the hope is that the currency will be pegged to a basket, including the euro, not just the dollar," Italian Finance Minister Domenico Siniscalco told reporters.

In June, China and the Chicago Mercantile Exchange struck a deal to create currency derivatives trading in Beijing. The government has also implemented policies to update its financial infrastructure and allow capital to flow more easily.

Still, China has set no time frame to end its peg with the dollar, and in spite of Treasury Secretary John W. Snow's lobbying and the G-7 meeting, few economists see a shift occurring imminently because they say the Chinese financial system needs to be developed further.

European, Japanese and Canadian officials said this week that the push for China to loosen its exchange rate is being led by the United States. President Bush and Democratic challenger John Kerry are seeking election at a time when American manufacturers complain that China's currency peg has cost them trade, profits and jobs.

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