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Large yuan revaluation ‘would hurt growth’

SEOUL – A BIG Chinese currency revaluation would invite speculation and damage growth, said Dr Fan Gang, a monetary policy adviser to the People’s Bank of China.

Sharp increases in the yuan’s value would trigger ‘large speculative capital inflows and outflows that will kill China’s growth and financial stability’, Dr Fan, a member of the central bank’s monetary policy committee, said at an investment forum in Seoul yesterday.

Officials from the Group of Seven nations have increased pressure on China to let the yuan appreciate more and take the burden off other currencies. French Finance Minister Christine Lagarde said on Sunday that the yuan causes ‘tensions’.

‘What would happen after a large – say 40 per cent to 50 per cent – appreciation of the yuan? Another request in two years,’ Dr Fan said. He was referring to United States lawmakers’ calls for bigger gains.

The yuan has climbed about 11.5 per cent versus the US dollar since a fixed exchange rate was scrapped in July 2005.

The world’s fourth-largest economy grew 11.5 per cent in the third quarter as record trade surpluses pumped in cash. A stronger currency would make exports more expensive, staunch the inflow of money and ease tensions with trading partners.

The dollar is likely to keep falling, a problem for the yuan, Dr Fan said. Central bank governor Zhou Xiaochuan said yesterday that his country supports a strong dollar.

Source: BLOOMBERG NEWS (The Straits Times 21 Nov 07)

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