Call to avoid currency control

Singapore: China may let its yuan currency rise gradually once the economic recovery becomes sustainable, Morgan Stanley's Asia chairman Stephen Roach said on Saturday.

"As the recovery becomes more sustainable they might go back to an incremental type of currency appreciation but that's not going to make much difference for Asia," Roach told Reuters on the sidelines of a meeting of Asia Pacific Economic Cooperation (Apec) economies.

The yuan has become a hot topic at the Apec meeting after finance ministers of the 21 economies, following a meeting in Singapore on Thursday, urged flexible foreign exchange rates to reduce global economic imbalances.

New Zealand Prime Minister John Key told Reuters Television earlier yesterday he expected minor appreciation in the yuan, adding such a move would help support the global recovery.

International Monetary Fund managing director Dominique Strauss-Kahn, also in Singapore, noted that China's economic stimulus is helping to rebalance its economy towards relying more on domestic demand but it still needs to let its currency rise over time.

Recent practice

On Wednesday China's central bank said it will consider major currencies in guiding the yuan, suggesting a departure from an effective dollar peg that has been in place since the middle of last year.

The reference to a new set of benchmarks for determining the value of the yuan holds out the possibility of a departure from recent practice, which has seen the currency held steady since mid-2008 around 6.83 per dollar.

Roach argued that an early appreciation could undermine the recovery in the export-led region given China is leading the revival. "Their exports to China have been a critical piece to their own recovery so they have to watch out and be very careful that they don't bite the very hand that feeds them," he said.

The recovery in Asia-Pacific economies has been gathering steam, with China, South Korea, Singapore and Indonesia reporting a pick-up in annual economic growth in the September quarter compared with the previous quarter.

Much of the growth has been due to fiscal and monetary stimulus implemented by governments around the world and Apec countries have agreed to keep the policies in place as long as it takes to cement the rebound. Roach said he expected these measures to remain until mid next year.

"My guess is middle of 2010 you begin to see some moves in that regards but that will be small," he said.

Singapore (Bloomberg) Controlling currency levels is a form of protectionism that policymakers must avoid "by all means", said the incoming chair of the Asia-Pacific Economic Cooperation's (Apec) Business Advisory Council.

"Foreign-exchange rates are a crucial factor in global trade, and guiding them to benefit a certain country is protectionism," said Gempachiro Aihara, who's also the current co-chair of the Apec business group and counsellor to Mitsui & Co. "We want policymakers to reject such policies."

China has kept its currency at about 6.83 per dollar since July 2008. Malaysia, Singapore and Vietnam manage their exchange rates against a basket of other currencies, while Hong Kong's dollar is pegged to its US counterpart.

Taiwan, South Korea and Thailand regularly buy and sell their currencies in market interventions.