China May End Yuan's Fixed Rate in 2004 to Help Slow Inflation
Dec. 30 (Bloomberg) -- China next year may end the yuan's decade-old fixed exchange rate to the U.S. dollar, allowing its currency to strengthen and slow export-led economic growth and inflation.
China has been buying U.S. currency to keep a value of 8.3 yuan per dollar set in 1994, putting more money into circulation. China's interest and exchange rates will stay at current levels, the central bank said in a Dec. 22 statement on its Web site after its fourth-quarter monetary policy committee meeting.
``China needs exchange rate flexibility,'' said Fred Hu, chief China strategist at Goldman Sachs Group Inc. in Hong Kong. ``The economy is booming, inflation is heating up and money and credit growth is so fast. That implies China would be better off to do this sooner rather than later.''
China's economy, the world's sixth largest, will grow 8 percent in 2004, from an estimated 8.6 percent this year, the fastest among the world's top 10 economies, according to the median forecast of 10 economists surveyed by Bloomberg News.
Federal Reserve Chairman Alan Greenspan said on Dec. 11 China's increased dollar-buying to preserve the peg was ``overheating'' the economy. The next day, the Beijing-based statistics bureau said on its Web site inflation accelerated to 3 percent in November, the fastest in 6 1/2 years.
``Rising inflation is ultimately the most likely trigger for a shift in the exchange-rate regime,'' Harvard University Professor Kenneth Rogoff, the former chief economist of the International Monetary Fund, said in an e-mail to Bloomberg News. ``There are strong pressures'' for the yuan to appreciate.
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