Related Event: RMB Revaluation
"Policy makers will observe the effects of the revaluation on the economy and the degree to which it is digested. This is an adjustment period," said Ba Shusong, a vice director with the State Council's Development Research Center.
"Exchange rate reform will affect trade, employment, farm products, and the overall economy. Companies and financial institutions all need time to adjust," Ba said in a weekend interview with Reuters and Shanghai Securities News.
The Development Research Center advises the State Council, China's cabinet, on economic policy.
Ba's views reflected the stance of other economists, who say the People's Bank of China, having finally bitten the bullet on the long-awaited revaluation, will take a cautious approach to further adjustments of the exchange rate.
The central bank said in its second-quarter monetary policy report last week that it would adjust the currency's new trading band when the time was right, but gave no hint when that change might occur.
Ba said last month's move, which also scrapped the yuan's peg to the dollar in favor of an exchange rate managed with reference to a currency basket, would make it easier to fight speculators betting on further appreciation.
"Under the floating exchange rate system, the initiative to take on speculators is in the hands of the central bank, while under the fixed exchange rate system, the initiative is actually in the hands of speculative capital," Ba said.
The modest size of the revaluation had not given speculators much of a profit, while the new managed float system introduced uncertainty by allowing the yuan to move up or down, Ba said.
The overhaul of the currency regime has also paved the way for Beijing to carry out other reforms aimed at making the yuan more flexible.
Last week, a foreign exchange official said China was set to introduce interbank yuan forwards and allow banks to become market makers in dollar transactions this month. Those moves would help hedge risk and increase liquidity.
The revaluation would help bring about an overall balance in China's trade account, but would have only a very small effect on China's huge surplus with the United States, Ba said.
China posted a $39 billion trade surplus in the first half of 2005, bigger than the surplus for all of last year.
Many analysts expect the second-half surplus to be around $40 billion, though a new estimate from a top Chinese think-tank said the revaluation would help slow export growth in the second half and limit the surplus to $30 billion.
On Monday state media quote a central bank monetary policy adviser as saying he expected the United States and other countries would soon start pressuring China to let the yuan rise in value.
"It is a pity that when we made such an important change, we didn't get any commitment from the U.S. and other countries" not to renew pressure, Yu Yongding said in an interview with the Economic Observer.
"Even if the yuan ultimately needs to appreciate by 10 percent or more, it doesn't mean we need to do it all at once."