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UPDATE 1-No need for China yuan to fall -c.bank adviser

Published 12/28/2009, 03:36 AM
Updated 12/28/2009, 03:39 AM

* Fan Gang comments follow domestic calls for depreciation

* Highlight polarised nature of debate on yuan (Adds quotes, background)

BEIJING, Dec 28 (Reuters) - There is no reason for China's yuan to depreciate against any currency, including the dollar, euro or yen, an adviser to its central bank said on Monday, highlighting the polarised nature of debate on the currency.

Fan Gang's comments come a day after Premier Wen Jiabao struck a defiant note about the country's exchange rate policy, saying that although the yuan was facing growing pressure to appreciate, Beijing is committed to keeping it stable.

While other countries almost unanimously consider the Chinese currency to be undervalued, giving exporters an unfair advantage in global trade, some domestic analysts have countered in recent months that weak exports show the yuan is actually too strong.

Fan, academic member of the People's Bank of China's monetary policy committee, refuted such arguments for depreciation, without saying outright that he thought the yuan had reason to strengthen.

"At least the yuan has no reason to depreciate, whether against the dollar or other currencies," Fan told a forum organised by the Economic Information Daily newspaper.

"Even in a long-term view, the yuan has no reason to fall against the U.S. dollar, euro, yen or any other currency," he said.

The yuan has been virtually pegged to the dollar since mid-2008.

Fan cited China's low inflation, low government debt level and rising productivity as reasons for yuan strength.

Making clear that he was expressing his personal views and not official policy, he added that the government needed to take the balance of the domestic economy into account when setting forex policy.

"We should consider our foreign exchange system and exchange rate policy against a broad background... The policy should not be just a response to foreign politicians in developed nations or U.S. congressmen," he said.

The yuan was flat against the dollar on Monday in both the onshore spot market and offshore one-year dollar/yuan non-deliverable forwards (NDFs).

Fan added that inflationary pressure and the risks of asset price bubbles were on the rise.

Exports could grow at a double-digit pace in 2010, he said, giving more detail to a forecast he gave over the weekend that the economy would grow by 8-9 percent in 2010.

"I don't want to say whether we should take an exit or not, but macro-economic policies are short-term policies and should be adjusted constantly according to situation changes," Fan said, echoing his earlier call for policy flexibility. (Reporting by Zhou Xin and Jason Subler; Editing by Chris Lewis)

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