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Yuan appreciation not certain yet

(Shenzhen Daily/Agencies)
Updated: 2006-08-07 15:35

The economy faces considerable uncertainty so appreciation of the yuan is not inevitable, the Shanghai Securities News quoted a deputy governor of the central bank as saying.

In comments to reporters at a financial conference, Wu Xiaoling said domestic companies should learn to manage risk rather than counting on the currency to move in a single direction, the newspaper said Saturday.

"Currency movements mainly reflect changes in supply and demand in the market," Wu said, adding that domestic firms should hedge their currency risk by using derivatives in the same way as foreign companies.

China has developed a market in currency options over the past year, but many firms are reluctant to use it because they lack expertise. Many assume that the yuan will continue the gradual but steady appreciation against the U.S. dollar of the past year, which exposes them to risk if the market changes.

Wu was also quoted as saying that the central bank was not concerned about a lack of liquidity in the stock market, which has fallen around 11 percent from its early July peak because of tighter monetary policy and a flood of initial public offerings.

"It does not lack money, what it lacks is confidence," she said.