Freer yuan would bolster other policy measures
(Shenzhen Daily/Agencies)
Updated: 2006-01-24 11:40

The central bank would gain greater control over the country's money supply if it allowed more flexibility for the yuan, a semi-official think tank said in a report published yesterday.

The China Society of Economic Reform said in a research note that the yuan's tight daily floating range and the country's rapidly growing foreign exchange reserves meant the central bank had relatively little control over money supply.

"The key issue for monetary policy is the yuan's exchange rate," it said in the report, published in the China Securities Journal.

"If the government widened the yuan's daily floating range or allowed the yuan to rise 3 to 5 percent in 2006, the pressure on monetary policy would be eased somewhat, and other policy measures would become more effective," it said.

The yuan, revalued by 2.1 percent against the U.S. dollar in July, is limited to moving 0.3 percent against the dollar in either direction in a single trading day, but in practice it has never moved more than a small fraction of that figure.

The research body added that, with the establishment of a market-making system this month, the People's Bank of China had maintained tight control over the currency market, preventing market makers from fully playing their role.

The China Society of Economic Reform undertakes research on behalf of the government on economic topics. The results of its research are often used as a reference in policymaking.