China widens yuan trading band
(AFP)
Updated: 2005-09-24 08:51

China's central bank has widened the yuan's trading band in its new currency basket on the eve of the G7 meeting in a move seen as deflecting US criticism that it is footdragging on currency reform.

"Non-dollar denominated currencies will be allowed to fluctuate within a 3.0 percent range either side, compared with the original 1.5 percent," the People's Bank of China said in a statement on Friday.

The adjustment allows for the yuan to fluctuate against non-dollar currencies such as the euro and the yen by three percent either side of the midpoint but maintains the yuan-dollar band unchanged at 0.3 percent.

The United States described China's move to widen its currency band for non-dollar currencies as a "technical step" that needed to be monitored.

"Our view is that the Chinese have said they will continue to take steps to create greater (currency) flexibility," US Treasury spokesman Tony Fratto said.

"This is a technical step in that process. We'll continue to monitor the implementation."

The tweaking comes as the Group of Seven meets Friday in Washington, where US Treasury Secretary John Snow is scheduled to hold bilateral talks with Chinese Finance Minister Jin Renqing and central bank governor Zhou Xiaochuan.

Snow is widely expected to press China for further currency reforms.

China has suggested, but not confirmed, that the euro, yen and won are among the currencies in its basket, but the dollar is understood to be its mainstay.

The central bank said the move was aimed at heading off speculators, with a widening of the band likely to increase transaction costs for them, and to help maintain a more stable yuan exchange rate.

It also reiterated its commitment to maintaining a stable yuan at a reasonable and balanced level but pledged to move towards a more flexible exchange rate.

While the move is seen as a necessary one, giving China's new currency basket system greater flexibility, the action was unlikely to appease US concerns that the currency needs to strengthen further.