China should allow the yuan to resume its gradual appreciation, two new advisers to the central bank said on Tuesday, as Beijing faces intense U.S. pressure to let its currency rise.
The clock is ticking down toward an April 15 ruling by the U.S. Treasury on whether China is deliberately manipulating its currency to keep its exports competitive and gain an unfair advantage in global markets.
Beijing allowed the yuan to rise 21 percent against the dollar between July 2005 and July 2008 before effectively repegging the currency, also known as the renminbi, near 6.83 to the dollar to help its exporters ride out the global credit crunch.
(China) should resume the pre-crisis managed floating exchange rate as quickly as possible, Xia Bin, a researcher with the Development Research Center, a think-tank under the cabinet, told Reuters.
Xia was one of the three economists named on Monday as members of the People's Bank of China's monetary policy committee, which plays a key advisory role in framing monetary policy.
Big decisions on exchange and interest rates, however, are taken by China's political leaders, not the central bank.
Li Daokui, another new member of the advisory body, said China should give up the dollar peg before September.
One way of relieving pressures on the renminbi exchange rate is to make an adjustment on China's own initiative, Li, an economist at Tsinghua University, was quoted by Caijing magazine as saying.
Li singled out September as a deadline so that political debate over the yuan does not boil over in the run-up to U.S. mid-term elections in November.
Xia, Li and Zhou Qiren, the third newly minted academic member of the monetary policy committee, are due to attend their first meeting of the panel on Tuesday, state media reported.
In a cover story, Caijing cited unidentified sources as saying that Beijing was studying the option of dropping the yuan's peg as soon as next month.
WASHINGTON AND TOKYO
If the administration of President Barack Obama does name China as a currency manipulator, it would be required to open intensive talks with Beijing on the issue.
Obama told China's new ambassador to Washington that he wanted to further develop a positive relationship with China, according to a White House statement late on Monday.
Asian governments have been far more reluctant than those in the West to pressure China to let the yuan strengthen for fear of economic or political repercussions. China's strong rebound from the global slowdown has helped the entire region recover much faster than Europe or the United States.
But the yuan's exchange rate could be on the agenda when Japanese Finance Minister Naoto Kan visits Beijing this weekend.
Asked whether the yuan would come up at his talks with Chinese officials, Kan said: I have not yet decided what to do at this point, but we may discuss this topic depending on the course of dialogue.
Offshore forward markets on Tuesday were pricing in an expected rise of 2.6 percent in the yuan over the next 12 months. A Reuters poll last week pointed to 3 percent appreciation in the coming year.
Some economists have warned that growing criticism from the West could make Beijing more averse politically to loosening its grip on the currency, though a recent Reuters poll showed policymakers are widely expected to allow some yuan appreciation anyway by the end of June as the economy continues to recover.
Huang Haizhou, a managing director of China International Capital Corp, the country's leading investment bank, joined in the chorus of calls for a stronger yuan.
Lifting the value of the yuan would ultimately benefit China's own growth, by dampening inflationary pressures and making imports relatively cheaper, Huang argued.
An appropriate appreciation of the renminbi would be to China's own benefit, Huang wrote in the March issue of the International Economic Review, a Chinese-language policy journal.
This could increase the flexibility of monetary policy, develop financial markets, expand domestic consumption and promote structural adjustment of the economy, helping to keep a balance between inflation and exchange rates, Huang wrote.
** Click http://r.reuters.com/gyh75j for a special package of analyses, columns, graphics and polls on the debate over the yuan's level.
(Additional reporting by Chris Buckley in Beijing and Tetsushi Kajimoto in Tokyo; Writing by Zhou Xin; Editing by Alan Wheatley and Ken Wills)
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