Bank official denies gov't manipulation of yuan
(Bloomberg)
Updated: 2006-01-20 09:07

Under the market-maker system, the yuan's volatility hasn't increased. The currency's biggest one-day price swing against the dollar this year is 0.03 percent. The biggest fluctuation since the ending of the peg is 0.07 percent on Aug. 11.

``The idea for the yuan market makers is to have the mechanism in place before seeing very volatile trading,'' said Kenneth Poon, head of local markets trading at ABN Amro in Shanghai, one of five foreign market makers. ``It needs time for the market to develop.''

Poon said trading is dominated by companies involved in trade, rather than hedge funds or individual investors, because the government limits conversion of currency for investment purposes. He said there was little incentive for banks ``to trade more aggressively'' in such a controlled environment.

`Actual Needs'

``Trading in China is not based on speculation, but based on actual needs,'' said Ma. ``Not unlike central banks in any other countries, we are the manager and participants of the currency market, and the goal is to maintain stability.''

Timothy Condon, head of Asian financial markets research at ING Groep NV in Singapore, said the central bank ``still has a big influence on the yuan'' and uses the same methods as its overseas counterparts to influence market prices. He predicts a 2 percent gain in the currency this year.

``Some people may think the yuan should appreciate rapidly, but, in fact, it may not,'' the central bank's Ma said. ``It's important to let U.S. politicians understand the currency and what the currency's mechanism is,'' he said, without naming the lawmakers concerned.

The U.S. Treasury, in a twice-yearly review released in November, didn't name China a currency manipulator, while calling for greater yuan flexibility.

China's expanding foreign-exchange reserves and trade surplus, which was ``much more than we expected'' in 2005, are putting pressure on the yuan to appreciate, Ma said.

Ma described as ``all rumor'' reports that China might switch its reserves out of U.S. dollar assets. ``We're satisfied with our management of foreign currency reserves,'' he said.