01Nov10

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China should allow stronger yuan: Goldman executive

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China should let the yuan rise further to help its transition toward a consumption-based economy, although there is no clear evidence the currency is undervalued, a senior executive at Goldman Sachs said on Monday.

Higher inflation in China had contributed to rises in the yuan's real exchange rate, said Jim O'Neill, chairman of Goldman Sachs asset management.

"To allow further modest appreciation may make some sense," he told reporters.

It was not in China's own interest to keep accumulating foreign exchange reserves, the world's largest stockpile at $2.65 trillion at the end of September, he said.

O'Neill said he suspected China would link the yuan's appreciation to a target on its current account balance.

Yi Gang, a central bank vice-governor, has said that China is drafting a plan to limit its current account surplus to less than 4 percent of GDP over the next three to five years.

China's current account surplus is getting close to 4 percent and such a promise will help make Beijing's stance more acceptable to other countries, particularly the United States, O'Neill said.

"It seems to me that it would be quite a good idea for China to agree to this idea of a 4 percent current account surplus target," he said.

At a G20 meeting in South Korea last month, the United States proposed that countries set a target of capping either their current account surplus or deficit at 4 percent of gross domestic product. But there was no consensus on the U.S. proposal.

[Source: Reuters, Beiging, 01Nov10]

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