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Suggestions to Calm RMB Revaluation Pressure

Chinese experts suggested Monday that balancing trade and investment, reforming the foreign currency exchange mechanism and reducing the interest in foreign currency accounts would calm the calls to strengthen the Renminbi (RMB).


Zhong Wei, director of the finance research center of Beijing Normal University, said the revaluation pressure was due to increasing Chinese exports and foreign direct investment in China.


A balanced trade and investment will eliminate the pressure, Zhong said.


Some experts suggested reforming the sale-and-buy mechanism of foreign currency, which now means foreign currency is bought by the government compulsively and enterprises could only reserve foreign currency amounting to 20 to 25 percent of their total exports in the previous year.


An increasing gap between the interests rates of the Chinese and foreign currencies lured international hot money and Wang Yuanlong of the international finance institute of the Bank of China advised limiting the gap to between 1.8 to 2.15 percentage points.


Other experts suggested the government encourage foreign institutes to issue RMB bonds and allow them to issue foreign currency bonds as well, which will hold back the inflow of hot money.


The key is to set up a market-oriented RMB exchange rate mechanism and push forward the free exchange of RMB at a proper time, experts said.

(Xinhua News Agency August 19, 2003)

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