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Last Updated: Friday, 1 October, 2004, 16:05 GMT 17:05 UK
Yuan pledge ahead of G7 meetings
Chinese banknotes
The US is leading the call for the yuan to be more flexible
China has given a further indication to the US that it will drop the yuan currency's tight peg to the dollar but has failed to commit to a date.

Its government fixes the yuan to the dollar at a rate some US companies say is undervalued, giving Chinese firms unfair competitive advantages.

The pledge came before China's first attendance at a meeting of G7 nations.

The US has been pushing China to allow the value of its currency to be set by the financial markets.

The G7 has also been calling on China to adopt a more flexible currency system. The yuan is currently set at 8.28 to the dollar.

US Treasury secretary John Snow and Federal Reserve chairman Alan Greenspan held a meeting with their Chinese counterparts Jin Renqing and Zhou Xiaochuan in Washington.

"The Chinese side reaffirmed China's commitment to further advance reform and to push ahead firmly and steadily to a market-based flexible exchange rate," the countries said in a joint statement.

In the past, the Chinese said changes will be difficult until the country puts in place a number of reforms to its banking system.

Some analysts believe such moves could take up to five years.

Debt relief pledge

International debt relief is also expected to be top of the agenda as global finance ministers meet.

As well as talks between the G7 group of leading nations, the US capital is hosting meetings of both the World Bank and the International Monetary Fund (IMF).

Speaking ahead of the meetings, Mr Snow said more debt relief is needed.

Rodrigo de Rato

However, he did not specifically endorse a British proposal to erase all debts from the poorest countries.

"Grants and debt relief must be significantly increased - we are considering more options to do so, including those that would provide up to 100% debt relief and grants from the international financial institutions." said Mr Snow.

The IMF has said introducing more flexible currency rates could help China keep inflation from knocking its booming economy off the rails.

IMF managing director Rodrigo de Rato said such a move would help China deal with any future "shocks" its economy may encounter.

"We think that the Chinese authorities should start moving to a more flexible system so their capacity of moving the currency to respond to economic fundamentals would be greater," he told BBC World Business Report.

"It would be in their own interests and give them a wider capacity to react."

IMF managing director Rodrigo de Rato
"China should move to a more flexible currency system."

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