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China Yuan Shift May Quicken After G-20, Morgan Stanley Says

Nov. 22 (Bloomberg) -- Pressure from the Group of 20 largest economies may spur China to allow its currency to appreciate against the dollar within months, according to Morgan Stanley.

``It's going to be more and more difficult for China to stay pegged'' after the G-20 yesterday called for emerging-market Asian countries to follow more flexible currency policies, said Stephen Jen, global head of currency research at Morgan Stanley in London. China has kept the yuan, also known as the renminbi, pegged at about 8.3 per dollar since 1995.

G-20 finance ministers and central bank governors in a joint statement after meeting in Berlin called for ``steps toward greater exchange-rate flexibility'' in emerging Asia. By contrast with China, South Korean officials have allowed the won to gain to a seven-year high against the dollar in the past week, while Taiwan's dollar climbed to the strongest since 2001.

``It is quite clear from the G-20 that the Asian currencies are going to appreciate, and every one has appreciated except one,'' said Jen. ``I'm confident they will de-peg and it's a matter of months,'' said Jen, who previously was an Asian currency strategist at Morgan Stanley based in Hong Kong. Jen also used to work at the Federal Reserve in Washington.

Chinese President Hu Jintao agreed to press for yuan ``reform while maintaining stability in the economy'' during a meeting with U.S. President George W. Bush in Santiago, Chile on Nov. 20, Chinese Foreign Ministry spokesman He Yafei said.

China's central bank Governor Zhou Xiaochuan said the same day that China will ``set our exchange rate at an equilibrium point.'' Neither official provided a time frame.

Chinese policy makers may set the yuan's value against a basket of foreign currencies, and allow it to rise or fall within a set band, Jen said.

To contact the reporter on this story:

Jake Lee at [email protected]

To contact the editor responsible for this story:

Daniel Moss at [email protected]

Last Updated: November 22, 2004 13:22 EST