China's central bank promised Saturday to allow more exchange rate flexibility, suggesting a possible break from the Chinese yuan's two-year peg to the US dollar, but it ruled out any large-scale appreciation. The statement posted on the website of the People's Bank of China mentioned no specific policy changes, though markets will be watched closely Monday for its effects. Chinese officials have said all along that reforms of the yuan, also known as the renminbi, or “people's money,” will be gradual. “It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility,” the central bank said. Signs that an economic recovery has taken hold prompted speculation that China would begin letting the yuan resume a gradual appreciation against the US dollar that began in 2005 but was halted abruptly in 2008 as the global financial crisis took effect. Since then, the yuan's value has remained at roughly 6.83 to $1, although it is formally pegged to a basket of currencies that includes the US dollar. In Washington, US Treasury Secretary Timothy Geithner welcomed China's exchange rate flexibility move Saturday, which he said would make a “positive contribution” to global growth once implemented. “We welcome China's decision to increase the flexibility of its exchange rate,” Geithner said in a statement. “Vigorous implementation would make a positive contribution to strong and balanced global growth.” The statement, timed just before President Hu Jintao's trip to the G-20 summit in Toronto, Canada, follows warnings from Beijing earlier this week against making its currency policies a main focus of the meeting. US Treasury Secretary Timothy Geithner and IMF Managing Director Dominique Strauss-Kahn quickly praised China's move. “We welcome China's decision to increase the flexibility of its exchange rate,” Geithner said in a statement issued in Washington.
